Energy Deflation?

More money for consumers

Energy Deflation?
Photo by Doris Morgan / Unsplash

Enersection Retail Energy Index: January Update

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The average U.S. home uses 10,632 kilowatt-hours of electricity, 68 million Btu of natural gas and 620 gallons of gasoline annually

Using average annual volumes and monthly pricing data, Enersection has created a monthly index tracking average 'Energy Costs' for US households - effectively how much does it cost to heat and power your home and fuel your car

The index suggests Residential Energy Costs are down a whoping 28% since peaking in June 2022 and now up only 2% versus a year ago

The average U.S. household is theoretically saving $1,800/year versus peak energy costs

Unfortunately, the bad news is the trailing 12-month index hit an all-time high in January

Although energy prices have come down in recent months, lower prices will take time to work their way into consumers pockets

Monthly Index

Enersection's Residential Energy Index suggests annual residential energy costs in the U.S. are at $4,700 per year, down from $6,500 in June 2022.

Spot prices have peaked, but U.S. consumers remain on the tail end of the most expensive energy costs in their lifetimes.

Outright year-over-year energy deflation appears right around the corner based on our index readings.

Retail gasoline costs are currently more in-line with oil costs relative to 2022 when crack spreads exploded.

Residential gas delivered by LDCs has seen the average U.S. price drop by 50% in five months, tracking the natural gas price cliff dive.

With natural gas prices driving the marginal price of power in much of the U.S., correlation with power prices is tight so like residential gas deliveries, power prices are following natural gas lower.

The impact of lower fuel (natural gas) prices for power and LDC customers isn't felt immediately.  Indeed as natural gas prices have dropped recently, the price premium for residential gas and power has expanded.

Inflation.  Deflation.  Quantitative tightening.  If our index is correct, an additional $1,800 per U.S. household creates additional consumption and spending and makes the Fed's job of reigning in inflation more challenging.