Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
So far, the attacks on shipping in the Red Sea by Houthi militants in Yemen have made global oil markets nervous, but haven’t caused a significant price spike. The Red Sea is a vital waterway for global commerce, including oil and gas traveling from the Middle East to the Suez Canal. The decision by many ship owners to route their vessels the long way around the southern tip of Africa to avoid potential missile and drone strikes adds considerable time and cost to any shipment, and thus could push up oil prices a bit.
The real risk is that the current situation could escalate and cause bigger disruptions to waterborne energy shipments. Warships from the United States and other countries have been forced to police the Red Sea, shooting down Houthi missiles and drones, and more recently launching strikes on Houthi positions in Yemen. If these clashes worsen and draw in Iran, the Houthis’ chief backer, the huge oil shipments that pass through the Persian Gulf could become threatened. The Straight of Hormuz, the narrow opening into the Persian Gulf, is the most critical oil shipping route in the world, according to the U.S. Department of Energy. Roughly a fifth of the world’s oil flows through it each day, with massive oil tankers passing within a few miles of Iran’s coast. If it chooses to, Iran could effectively shut off that flow of oil by targeting tankers with its large arsenal of advanced antiship missiles.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There’s no telling how the current conflict will evolve. But expect plenty of volatility in oil markets for the time being. And even without a major escalation, we think oil prices are likely to trend higher in the coming months. After dropping last autumn, benchmark West Texas Intermediate crude oil has stabilized in a range of $70 to $75 per barrel. Demand is seasonally weak now, but will pick up as spring approaches, as long as the U.S. economy stays healthy and consumers keep driving to jobs and for warm-weather vacations. U.S. oil production has grown enough recently to offset production cutbacks by OPEC and its allies. But if oil demand stays strong, it will be hard for American producers to keep meeting that demand without prices rising. So, we look for WTI to tick up to a range of $75 to $80 by late winter or early spring. If a wider war threatens in the Middle East, oil prices could go considerably higher.
Gasoline prices are holding steady, but they may have bottomed out for the winter. The national average price of regular unleaded is $3.07 per gallon, down a penny from a month ago. The price at the pump usually hits a low point in midwinter and then trends higher as spring nears. Demand starts rising with the mercury in thermometers, and refiners have to switch to costlier, summertime gas blends. So, we look for the national average price of regular unleaded to climb at least a little bit, maybe toward $3.25 per gallon by late winter.
Natural gas prices are volatile due to the ongoing severe cold outbreak across much of the United States. Demand soars during these cold snaps and supplies of gas in storage get drawn down, so traders bid up gas prices. However, it is hard to know when a cold pattern will relent and allow demand to return to normal, so gas prices can drop sharply if a weather forecast suggests a warming trend. The benchmark gas futures contract recently traded at $2.96 per million British thermal units. That’s down a lot from last week, but higher than gas prices were trading until a few weeks ago. If winter brings additional bouts of Arctic air in the coming weeks, we look for gas prices to push toward $3.50 per MMBtu or higher.
Related content
-
How To Spring Clean Your PortfolioRegular purges of closets help us clear out what's not working, and the same should be done for our investments. Here's how to spring clean your portfolio.
-
Nine of the Biggest Regrets I See as a Financial Planner
Check out this list of common regrets among older people and see if there’s something you can address in your own life while there’s still time.
-
A Spotlight on the Mountain States: The Kiplinger Letter
The Kiplinger Letter Most Mountain states are seeing good job growth in multiple sectors from healthcare, energy, and semiconductor production to farming and government.
-
A Spotlight on the Plains States: The Kiplinger Letter
The Kiplinger Letter The labor market is tight in the Plains states and outside of healthcare and construction most sectors are flat or down.
-
Kiplinger's Commodities Forecast
The Kiplinger Letter Following a rocky few years for markets, we expect commodities to be less volatile in 2024, as a post-pandemic normal finally emerges.
-
Growth Stalls in China As Property Market Continues to Struggle: The Kiplinger Letter
The Kiplinger Letter The property market remains a major drag on Chinese growth, with sales now 50% below their peak.
-
A Spotlight on the South Central States: The Kiplinger Letter
The Kiplinger Letter Outside of the tech sector slump, job growth in the South Central states remains buoyant, with healthcare, construction and business investment going strong.
-
A Spotlight on the Midwest: The Kiplinger Letter
The Kiplinger Letter Despite slow or no job growth, the overall outlook for the Midwest region remains mostly positive due to in-migration and key business sectors.
-
A Spotlight on the Mid-South States: The Kiplinger Letter
The Kiplinger Letter Despite slow or no job growth, the overall outlook for the mid-south region remains mostly positive due to in-migration and key business sectors.
-
A Spotlight on the Southeastern States: The Kiplinger Letter
The Kiplinger Letter The Southeastern states will see steady job growth in the healthcare and hospitality sectors with some pressures from inward migration.
