Oil prices have completely skyrocketed this year, hitting a 2 year high! It wasn’t uncommon for many to be able to fill up their gas tanks for just under half the price a little over a year ago. This has left many consumers upset, confused, and wanting answers. Some of the most common questions are: Why did it happen? Will prices go back down1?
Let’s start with the first question, why it happened. In 2020 when a worldwide pandemic hit, traveling halted. The pandemic paused consumer travel, manufacturer shipping, and business travel. Since nobody was traveling/shipping, there wasn’t a demand for buying oil, and instead there was a surplus! Oil manufacturers shut down, laid-off employees, and/or drastically slowed business. When a vaccine became accessible, and distribution happened rapidly, businesses, shipping, and consumer travel could happen for the first time in almost a year. Many businesses are back to being open at full capacity, and individuals are back to their normal way of life; however, oil didn’t recover at the same rate2.
Since consumption of oil was so low, they stopped mining as much. This lead there to be a low supply and very high demand now that many see the pandemic in their rearview. The low supply and high demand are what’s driving prices so high. The oil industry is different from many other typical consumer goods in that it takes time to mine and refine oil. The lag of time highly influences the rate the industry can bring supply back to reach the demand3.
Will prices go back down? That question has been somewhat left in limbo. Some experts are expecting oil prices to decrease in 2022, but others claim that over the next 3 years prices will continue to climb. The rise of inflation is also a contributor. Prices will naturally rise, and it is unknown right now if oil will decrease, stay stagnant, or continue to rise4.
As seen with last years whirl wind of a global pandemic, there are some things that can’t be predicted or immediately controlled. Change is inevitable and the key to success in times of change is being adaptable. While we can’t control oil prices, we can control if we have a financial plan. When prices of goods shifts, we encourage looking at your households’ financial plan and adjusting your budget accordingly. This is especially important for those nearing or in retirement because having a proper plan helps ensure you are taken care of financially through your retirement. If you would like help developing a plan or a budget through your retirement, give us a call at 801-465-6990. We’d love to help!
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