[Editor's note: A version of this story appears in the January 2022 issue of Oil and Gas Investor magazine.]
Inflation, that strange phenomena in which too much money results in too few things, has spread into grocery stores, clothing shops and especially energy commodities. Each area has taken a different path to higher prices, but oil and natural gas prices have surged beyond all other areas in the past 12 months, according to the U.S. Department of Labor Statistics.
WTI prices have made a starling recovery since April 2020, when prices averaged $16.55/ bbl. In November 2021, WTI spot prices averaged $79.15, nearly five times higher. Some politicians have labeled this price gouging, despite rising production that’s been unable to keep pace with recovering demand as the planet reopens from the pandemic. Yet oil and gas companies themselves are fretting over rising prices as they enter 2022. As the industry settles into a recovery based largely on self-restraint, E&Ps are girding themselves against sizable cost increases from pressure pumpers, drillers and other service providers.
The inflation faced by the broader economy pales in comparison. The International Monetary Fund predicts that U.S. inflation will find its trough at about 2% by mid-2022 after peaking at the end of last year. Oil and gas companies? They’re bracing for price hikes of up to 15% this year.