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Saul loeb

Energy prices are surging, and the economy is already feeling the pinch of higher fuel costs though it is far from stalling out.

There is an unusual coincidence of much higher oil, natural gas and coal prices, combined with other rising commodities and supply chain disruptions. That perfect storm of shortages and higher prices begs the question of whether the economy could go into a serious tailspin or even a recession.

Economists say, for now, the jump in prices is not the type of oil shock that will turn U.S. growth negative, but there will be economic consequences of higher energy costs, particularly in places like Europe where natural gas prices have skyrocketed.

“Periods of trending oil prices tend not to be a problem,” JPMorgan chief economist Bruce Kasman said. “The periods of spiking oil prices tend to be what gets you into trouble. They tend to be largely supply driven, and they tend to have disruptive elements that are more broad in terms of their potential drags on growth.”

“We do have a rise in energy that will be a drag on fourth quarter growth,” he added. “It’s not at a point where we’re warning about recession, but it’s at the point where you have to worry about it hurting growth in a material way.”

American consumers have already been paying up for gasoline, and heating and electricity costs could rise more this winter. Oil prices are up more than 65% this year so far, while natural gas prices have jumped more than 112% since January.

“We’re looking at GDP growth in the 4% to 6% range … We would have to see massive doubling and tripling of oil prices for it to have such a bad effect that we go … to negative growth,” said Anwiti Bahuguna, head of multi-asset strategy at Columbia Threadneedle.

Since last October, gasoline prices have risen about $1.10 per gallon, and are now at $3.27 per gallon of unleaded, according to AAA. Oil prices were depressed and even turned negative when the pandemic shut down the economy in 2020. Now, forecasts for $100 oil are getting more common, as West Texas Intermediate oil futures trade above $80 per barrel for the first time since 2014.

“What’s different about this is normally it’s oil that leads an energy crisis, but in this case it’s the tail that’s being wagged by natural gas, coal and renewables,” said Daniel Yergin, vice chairman of IHS Markit. “Oil is filling in to make up for the fact that [liquified natural gas] is maxed out and wind in Europe has been a lot lower than normal.”

Trouble brewing in energy markets

Yergin said oil will likely remain under pressure, and within several months about 600,000 to 800,000 barrels a day could be used as a substitute for natural gas in Europe and Asia, where supplies are short. Oil can be substituted for electricity generation and in some manufacturing.

Citigroup forecasts a winter price shock that could see natural gas prices in Europe average over $30 per one million British thermal unit in the fourth quarter and over $32 in Asia. But Citi energy analysts also say if there is a very cold winter that could spike as high as $100 mmBtus, the equivalent of about a $580 barrel of oil. By comparison, U.S. natural gas futures are currently trading at $5.25 per mmBtu.

Coal prices have also been rising and supplies are short, creating a power supply crunch in China. The country burns coal to generate electricity, but the inventory at its power plants faced a 10-year low in August. That has also increased the demand for natural gas.

“While China unambiguously needs as much coal as it can get its hands on to avert a [fourth-quarter] slowdown due to the tyranny of rolling power shortages, geopolitical tensions with Australia have waylaid the most convenient source of high-calorific coal from Down Under,” Vishnu Varathan, head of economics and strategy for Asia and Oceania treasury department at Mizuho, said in a recent note.

Economists say the rise in energy prices would have to be sharper and much more prolonged to cause a recession.

Bernstein energy analysts looked at past periods where prices rose sharply, and found that recessions followed periods where energy costs were at 7% of global GDP, as they reached in October.

They note the probability of recession rises when the energy costs stay above that level for a period, greater than a year.

“While the recent spike in energy costs may prove transient, a protracted period of energy costs [greater than a year] or further rise in oil to over US$100/bbl could trigger a slowdown in global economic growth as disposable income gets squeezed,” Bernstein analysts wrote.

Even though the share of energy costs is the highest in nearly a decade, on an annual basis it is still 5.2% of GDP so far in 2021, and that is not yet a dangerous level, they added.

“Annual energy costs as a percentage of GDP are above the 30-year average of 4.4%, but below that of 1979 or 2008 when annual energy costs reached over 7% of GDP,” the Bernstein analysts wrote. “If energy prices rises prove to be transient, then the risk of an energy induced recession remains low.”

U.S. as a producer

Changes in the U.S. energy industry over the past two decades have provided some insulation from some of the current global energy crisis.

Mark Zandi, chief economist at Moody’s Analytics, said the hit from an energy price surge would not be all negative, since the U.S. is now a large energy producer. The U.S. produces about 11.3 million barrels a day, and exports oil and refined products.

Even with its huge production, the U.S. remains an importer of crude, bringing in an average 3.8 million barrels a day over four weeks, according to the latest Energy Information Administration weekly data.

The U.S. is providing natural gas to Europe and Asia, in the form of LNG exports, but U.S. gas prices are tied more to the domestic market and have been elevated because U.S. supplies remain lower than normal for this time of year.

Zandi said the dominance of the U.S. energy industry also has a positive impact on energy-producing parts of the economy as prices rise.

“That doesn’t mean that higher energy prices under certain scenarios wouldn’t cause a recession,” he said. “It’s just much less likely, and it would take much higher prices than it has in the past.”

Zandi said every penny increase in the cost of a gallon of gas costs U.S. consumers $1 billion. When it rises $1, as it has in the last year, that’s about $100 billion.

Another $1 jump would be harmful.

“That’s $100 billion, just a half percent of GDP. It would do damage. It would ding the economy, but I don’t think it would derail it,” he said. “If it went to $5.25, that’s $200 billion. That’s a percent of GDP. If energy prices are rising like that it’s likely other prices are rising.”

The immediate impact of higher energy costs is higher inflation, which creates a drag on consumer spending.

Kasman said the increase in energy prices, as of last week, would add about 2.5% to the consumer price index in the fourth quarter, if prices remain at that level. That could translate to a drag of a half percentage point or more on GDP, he noted.

“That is not small, but it’s not a recession,” he said. Kasman said he expects a pretty strong global economy next year, but the higher energy costs do raise concerns there could be an even big enough drag on purchasing power and that could chip away at growth.

Kasman said the impacts gets worse, the higher prices go. JPMorgan economists ran an analysis where they projected another 50% jump in energy prices.

“In this scenario, in which crude oil prices move quickly above US$100/bbl, the shock to US incomes is very large — as CPI inflation is pushed up by 10%-pts annualized — nearly twice the impact we estimate for the Euro area,” they said in a note. “While this scenario does not appear likely, it is important to recognize the threat posed by the combination of supply shocks now buffeting the global economy.”

JPMorgan forecasts fourth-quarter gross domestic product growth of 3.5%, and now expects the third quarter grew at a 4% pace, down from an earlier forecast of 8%. The firm expects average growth of 3.5% next year. They also forecast CPI gains to average more than 4% during the second half of the year.

CNBC’s Michael Bloom and Saheli Roy Choudhury contributed to this report.

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The aluminum sector isn’t moving to the U.S. despite tariffs — due to one key reason

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The aluminum sector isn't moving to the U.S. despite tariffs — due to one key reason

HAWESVILLE, KY – May 10

Plant workers drive along an aluminum potline at Century Aluminum Company’s Hawesville plant in Hawesville, Ky. on Wednesday, May 10, 2017. (Photo by Luke Sharrett /For The Washington Post via Getty Images)

Aluminum

The Washington Post | The Washington Post | Getty Images

Sweeping tariffs on imported aluminum imposed by U.S. President Donald Trump are succeeding in reshaping global trade flows and inflating costs for American consumers, but are falling short of their primary goal: to revive domestic aluminum production.

Instead, rising costs, particularly skyrocketing electricity prices in the U.S. relative to global competitors, are leading to smelter closures rather than restarts.

The impact of aluminum tariffs at 25% is starkly visible in the physical aluminum market. While benchmark aluminum prices on the London Metal Exchange provide a global reference, the actual cost of acquiring the metal involves regional delivery premiums.

This premium now largely reflects the tariff cost itself.

In stark contrast, European premiums were noted by JPMorgan analysts as being over 30% lower year-to-date, creating a significant divergence driven directly by U.S. trade policy.

This cost will ultimately be borne by downstream users, according to Trond Olaf Christophersen, the chief financial officer of Norway-based Hydro, one of the world’s largest aluminum producers. The company was formerly known as Norsk Hydro.

“It’s very likely that this will end up as higher prices for U.S. consumers,” Christophersen told CNBC, noting the tariff cost is a “pass-through.” Shares of Hydro have collapsed by around 17% since tariffs were imposed.

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The downstream impact of the tariffs is already being felt by Thule Group, a Hydro customer that makes cargo boxes fitted atop cars. The company said it’ll raise prices by about 10% even though it manufactures the majority of the goods sold in the U.S locally, as prices of raw materials, such as steel and aluminum, have shot up.

But while tariffs are effectively leading to prices rise in the U.S., they haven’t spurred a revival in domestic smelting, the energy-intensive process of producing primary aluminum.

The primary barrier remains the lack of access to competitively priced, long-term power, according to the industry.

“Energy costs are a significant factor in the overall production cost of a smelter,” said Ami Shivkar, principal analyst of aluminum markets at analytics firm Wood Mackenzie.  “High energy costs plague the US aluminium industry, forcing cutbacks and closures.”

“Canadian, Norwegian, and Middle Eastern aluminium smelters typically secure long-term energy contracts or operate captive power generation facilities. US smelter capacity, however, largely relies on short-term power contracts, placing it at a disadvantage,” Shivkar added, noting that energy costs for U.S. aluminum smelters were about $550 per tonne compared to $290 per tonne for Canadian smelters.

Recent events involving major U.S. producers underscore this power vulnerability.

In March 2023, Alcoa Corp announced the permanent closure of its 279,000 metric ton Intalco smelter, which had been idle since 2020. Alcoa said that the facility “cannot be competitive for the long-term,” partly because it “lacks access to competitively priced power.”

Similarly, in June 2022, Century Aluminum, the largest U.S. primary aluminum producer, was forced to temporarily idle its massive Hawesville, Kentucky smelter – North America’s largest producer of military-grade aluminum – citing a “direct result of skyrocketing energy costs.”

Century stated the power cost required to run the facility had “more than tripled the historical average in a very short period,” necessitating a curtailment expected to last nine to twelve months until prices normalized.

The industry has also not had a respite as demand for electricity from non-industrial sources has risen in recent years.

Hydro’s Christophersen pointed to the artificial intelligence boom and the proliferation of data centers as new competitors for power. He suggested that new energy production capacity in the U.S., from nuclear, wind or solar, is being rapidly consumed by the tech sector.

“The tech sector, they have a much higher ability to pay than the aluminium industry,” he said, noting the high double-digit margins of the tech sector compared to the often low single-digit margins at aluminum producers. Hydro reported an 8.3% profit margin in the first quarter of 2025, an increase from the 3.5% it reported for the previous quarter, according to Factset data.

“Our view, and for us to build a smelter [in the U.S.], we would need cheap power. We don’t see the possibility in the current market to get that,” the CFO added. “The lack of competitive power is the reason why we don’t think that would be interesting for us.”

How the massive power draw of generative AI is overtaxing our grid

While failing to ignite domestic primary production, the tariffs are undeniably causing what Christophersen termed a “reshuffling of trade flows.”

When U.S. market access becomes more costly or restricted, metal flows to other destinations.

Christophersen described a brief period when exceptionally high U.S. tariffs on Canadian aluminum — 25% additional tariffs on top of the aluminum-specific tariffs — made exporting to Europe temporarily more attractive for Canadian producers. Consequently, more European metals would have made their way into the U.S. market to make up for the demand gap vacated by Canadian aluminum.

The price impact has even extended to domestic scrap metal prices, which have adjusted upwards in line with the tariff-inflated Midwest premium.

Hydro, also the world’s largest aluminum extruder, utilizes both domestic scrap and imported Canadian primary metal in its U.S. operations. The company makes products such as window frames and facades in the country through extrusion, which is the process of pushing aluminum through a die to create a specific shape.

“We are buying U.S. scrap [aluminium]. A local raw material. But still, the scrap prices now include, indirectly, the tariff cost,” Christophersen explained. “We pay the tariff cost in reality, because the scrap price adjusts to the Midwest premium.”

“We are paying the tariff cost, but we quickly pass it on, so it’s exactly the same [for us],” he added.

RBC Capital Markets analysts confirmed this pass-through mechanism for Hydro’s extrusions business, saying “typically higher LME prices and premiums will be passed onto the customer.”

This pass-through has occurred amid broader market headwinds, particularly downstream among Hydro’s customers.

RBC highlighted the “weak spot remains the extrusion divisions” in Hydro’s recent results and noted a guidance downgrade, reflecting sluggish demand in sectors like building and construction.

— CNBC’s Greg Kennedy contributed reporting.

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One of the world’s largest wind farms just got axed – here’s why

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One of the world’s largest wind farms just got axed – here’s why

Danish energy giant Ørsted has canceled plans for the Hornsea 4 offshore wind farm, dealing a major blow to the UK’s renewable energy ambitions.

Hornsea 4, at a massive 2.4 gigawatts (GW), would have become one of the largest offshore wind farms in the world, generating enough clean electricity to power over 1 million UK homes. But Ørsted announced that it’s abandoning the project “in its current form.”

“The adverse macroeconomic developments, continued supply chain challenges, and increased execution, market, and operational risks have eroded the value creation,” said Rasmus Errboe, group president and CEO of Ørsted.

Reuters reported that Ørsted’s cancellation of Hornsea 4 would result in a projected loss of up to 5.5 billion Danish crowns ($837.85 million) in breakaway fees and asset write-downs. The company’s market value has declined by 80% since its peak in 2021.

The cancellation highlights significant challenges currently facing offshore wind development in Europe, particularly in the UK. The combination of higher material costs, inflation, and global financial instability has made large-scale renewable projects increasingly difficult to finance and complete.

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Ørsted’s decision is a significant setback to the UK’s energy transition goals. The UK currently has around 15 GW of offshore wind, and Hornsea 4’s size would have provided almost 7% of the additional capacity needed for the UK’s 50 GW by 2030 target, according to The Times. Losing this immense project off the Yorkshire coast could hamper the UK’s pace of reducing dependency on fossil fuels, especially amid volatile global energy markets.

The UK government reiterated its commitment to renewable energy, promising to work closely with industry leaders to overcome financial and logistical hurdles. Energy Secretary Ed Miliband told reporters in Norway that the UK is “still committed to working with Orsted to seek to make Hornsea 4 happen by 2030.”

Ørsted says it remains committed to its other UK-based projects, including the Hornsea 3 wind farm, which is expected to generate around 2.9 GW once completed at the end of 2027. Despite the challenges, the company emphasized its ongoing commitment to the British renewable market, pointing to the critical need for policy support and economic stability to ensure future developments.

Yet, the cancellation of Hornsea 4 demonstrates that even flagship renewable projects are vulnerable in the face of economic pressures and global uncertainties, which have been heightened under the Trump administration in the US.

Read more: The world’s single-largest wind farm gets the green light


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Is the Tesla Roadster ever going to be made?

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Is the Tesla Roadster ever going to be made?

The Tesla Roadster appears to be quietly disappearing after years of delay. is it ever going to be made?

I may have jinxed it with Betteridge’s Law of Headlines, which suggests any headline ending in a question mark can be answered with “no.”

The prototype for the next-generation Tesla Roadster was first unveiled in 2017, and it was supposed to come into production in 2020, but it has been delayed every year since then.

It was supposed to get 620 miles (1,000 km) of range and accelerate from 0 to 60 mph in 1.9 seconds.

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It has become a sort of running joke, and there are doubts that it will ever come to market despite Tesla’s promise of dozens of free new Roadsters to Tesla owners who participated in its referral program years ago.

Tesla uses the promise of free Roadsters to help generate billions of dollars worth of sales, which Tesla owners delivered, but the automaker never delivered on its part of the agreement.

Furthermore, many people placed deposits ranging from $50,000 to $250,000 to reserve the vehicle, which was supposed to hit the market 5 years ago.

The official timelines from Tesla are pretty useless at this point since they haven’t stuck to any of them, but the latest official one dates back to July 2024 when CEO Elon Musk said this:

“With respect to Roadster, we’ve completed most of the engineering. And I think there’s still some upgrades we want to make to it, but we expect to be in production with Roadster next year. It will be something special.”

He said that Tesla had completed “most of the engineering”, but he initially said the engineering would be done in 2021 and that was already 3 years after the prototype was unveiled and a year after it was supposed to be in production:

Musk commented on the Roadster again in October 2024, but he didn’t reiterate the 2025 timeline. Instead, he called the new Roadster “the cherry on the icing on the cake.”

Tesla’s leadership has been virtually silent about the new Roadster since. Two Tesla executives even had to be reminded about the Roadster by Jay Leno after they “forgot” about it when listing upcoming new Tesla vehicles with tri-motor powertrain.

There was one small update about the Roadster in Tesla’s financial results last month.

The automaker has a table of all its vehicle production, and the Roadster was updated from “in development” to “design development” in the table:

It’s not clear if that’s progress or Tesla is just rephrasing it. Either way, it is not “construction”, which makes it unlikely that the Roadster is going into production this year.

If ever…

Electrek’s Take

It looks like Tesla owes about 80 Tesla Roadsters for free to Tesla owners who referred purchases, and it owes significant discounts on hundreds of units.

It’s hard for me to believe that Tesla is not delivering the new Roadster because the vehicle program would start about $100 million in the red, but at this point, I have no idea. It very well might be the reason.

However, I think it’s more likely that Tesla is just terrible at bringing multiple vehicle programs to market simultaneously. Case in point: it launched a single new vehicle in the last five years.

At this point, I think it’s more likely that the Roadster will never happen. It will join other Tesla products like the Cybertruck Range Extender.

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