By Barani Krishnan

Investing.com – Regardless of how high energy prices go over the next three months, what’s important to note is that inflation isn’t going to get any better for America or, for that matter, any part of the world. 

Barring need, if the premise of demand is that one would only be able to pay what one could afford, then demand destruction is likely to set in if oil and prices keep rising and rising.

Anyone who has dabbled with commodities long enough will know the saying “the cure for high prices is, high prices.” 

The theory is based on Economics 101, that unless we are talking about supplies that will decide between life and death, no raw material is going to challenge the rule of affordability. 

Of course, it can be argued that without gas or oil to heat homes during an intense winter storm like this year’s Texas Blitz, people will die. 

According to United Nations estimates, around 25,000 people per year die from hunger due to famines or other food/grain shortages.  

As humans, it’s virtually impossible for us to completely shut energy and agricultural commodities out of our lives, no matter how expensive they get.

Leigh Drogen, quant fund manager, reminded us in an article a decade back that it is possible to defy the laws of existence to some degree.

Do you want to see the proof? When gas prices at the pump become too expensive or food prices go through the roof, “we drive less, or not at all; we eat less, or in some sad cases not at all,” said Drogen.

While it might not be possible to keep a home warm, extra thermal wear or blankets may help.

“Humans are extremely flexible when faced with crisis situations arising from resource scarcity,” Drogen added. “Adapt and survive, it is a basic human instinct, it’s a basic corporate instinct as well.”

While that blog may have been written 10 years ago, it’s surreally applicable for today’s Covid-struck world. Aren’t those exactly the things we’ve been doing the past 18 months? Didn’t we drive less and just ate what we could lay our hands on?

We can keep doing what we are currently doing, with many employers still being flexible on remote work despite the ongoing risks of the Delta virus. As things stand now, U.S. unemployment claims per week are still exceeding 300,000 and employers continue receiving complaints that they cannot find workers.

While it may have taken a once-in-a-century pandemic to alter practice of how and where work gets done, it doesn’t necessarily have to take millions of new infections a day for people to insist that they wish to work from home. 

Don’t believe me? Ask OPEC. 

Ask OPEC. 

While the pandemic is under better control now and OPEC could hold at least quarterly meetings at its Vienna headquarters, the cartel isn’t taking any chances. The cartel meets virtually every month to ensure it doesn’t get caught out by the markets. 

Customers can also play this game. They may say they prefer to drive less, work at home, or only go out when needed. The average U.S. gasoline price has risen from $2.18 per year ago to $3.19/gallon. It is possible to argue that $1 per gallon was not enough for oil companies to survive. People still recall the $4+ levels of financial crises when crude oil reached as high as $147 per barrel. Brent now stands at just $80 and the oil bulls argue that consumers are able to absorb greater pain. 

The problem with that argument is each supply squeeze—and resultant price spike and bust—has its own trigger. Consumers are being hit hard by rising inflation. What might have been acceptable 13 years ago may not be so today.

There are several catalysts for the present market situation in oil, one being the month-old Hurricane Ida—a phenomenon that no right-thinking person could have imagined would have lasted this long. 

As of Thursday, some 294,414 barrels equivalent of oil, or 16.2% of the production in the U.S. Gulf Coast of Mexico remained shut-in, according to the  Bureau of Safety and Environmental Enforcement, the government agency responsible for keeping track of this.

Natural gas, of course, is the other main driver for what’s happening in oil. Natural gas prices had increased more than 100 percent in the past year as of Friday. At this month’s peak of $5.65 per mmBtu, or million British thermal units, they were below the February 2014 peak of $6.49.

There’s talk that natural gas prices could get to $6 per mmBtu or beyond in coming weeks. If that’s the case, and fuel prices go even higher at the pump, it may just be the trigger for consumers to start reacting in unexpected ways.

Oil Market & Price Roundup

New York-traded , the benchmark for U.S. oil, settled up 68 cents, or 0.9%, at $73.98 per barrel. WTI gained 2.8% for the week.

London-traded crude, the global benchmark for oil, settled up 84 cents, or 1.1%, at $78.09. Brent gained 3.7% during the week.

Brent gained 3.7%, and WTI was up for the fifth consecutive week. Brent is now at its fourth-highest level in five weeks. Both Brent and WTI are about half off their year highs.

WTI hit $74.27 earlier in the session. This is its highest level since October 2018. Brent, however, reached $78.24, marking a similar milestone.

Gold Market & Price Roundup

U.S. gold futures’ most active contract, , settled down $1.90, or 0.1%, at $1,751.70 per ounce on New York’s Comex.

It was actually flat for the week, just 30 cents lower than last Friday.

For long-term investors, who have suffered from poor forecasts over the last nine months and have lost a lot of money, it should have been compared against Wednesday. 

That was the day when gold lost 2%, its most since early August, as spiked and the girded higher as well on speculation of hawkish Federal Reserve action over its economic stimulus and lower-for-longer interest rates.

“Gold has been battling against a stronger dollar that stemmed from surging Treasury yields post-Fed,” said Ed Moya, analyst at online trading platform OANDA. 

“Gold is in a very tough spot and volatility will remain elevated with the risks remaining to the downside.  The U.S. growth story will continue to improve if COVID modelers are right about a steady decline in COVID cases through March.”

Moya added that gold longs could be in further trouble if Chinese property giant Evergrande (HK:), which rocked markets this week with its growing debt crisis, managed to avert a contagion. “If the Evergrande fallout is contained over the weekend, gold could be vulnerable for a test of the $1,700 level.”

Fed Chair Jay Powell said at the conclusion of the central bank’s monthly policy meeting on Wednesday repeated his mantra that inflation was trending above the Fed’s target of 2% per annum due to the higher costs of doing business in a pandemic-constrained economy. 

Since the beginning of 2020, the market has repeatedly shown it doesn’t trust the Fed can control inflation. Bond yields have risen to multi-year highs in response. The main victim of the yield rises has been gold, a asset with no yield that is often referred to as a “safe haven” and a commodity which can be viewed as non-yielding.

Energy Markets Calendar Ahead

Monday, Sept 27

Cushing crude inventory estimates (private)

Tuesday, Sept 28

weekly report on oil stockpiles.

Wednesday, Sept 29

EIA weekly report on

EIA weekly report on

EIA weekly report on  

Thursday, Sept 30

EIA weekly report on

Friday, Oct 1

Baker Hughes weekly survey on

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. He sometimes uses contrarian viewpoints and other market variables to maintain neutrality. His writings do not reflect his position on the securities and commodities he is writing about.