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Why Oil Prices Are Increasing

Recently, 50% of gas stations across Georgia were without gas. Gas prices hit a national high of $3.03 per gallon, with some gas stations charging $5.99 per gallon. America’s largest oil pipeline shut down for five days due to a cyberattack. The Colonial Pipeline, which runs 5,500 miles from Texas to New York, was at a standstill. It travels through Louisiana, Mississippi, Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, and New Jersey. Governors in Florida, Georgia, North Carolina, and Virginia all declared states of emergencies. Panic buying, long lines and price gouging became common in these states. Learn more about rising oil prices below.

The Trigger: Cyber Attack

On May 7th, the computer systems operating the Colonial Pipeline faced a cyberattack. To contain the attack, operations of the entire pipeline froze. America’s longest pipeline serves 13 states. It also serves more states with smaller pipeline connections. The Colonial Pipeline carries 3 million barrels of fuel per day across the country. Its shutdown put many regions into a state of emergency. The state of emergency allowed larger quantities of gas to be move by land into the affected areas. The states affected most were the south eastern states of Georgia and North Carolina. Many gas stations in the south eastern states experienced gas shortages. With gas stations selling fuel at faster rates, people began panic buying too. The Pipeline shutdown caused a spike in gas prices across the nation due to supply shortages.

Subsequent Events: Demand Increases

The Colonial Pipeline shut down for a total of five days. As you can imagine, the effect was immense. This hit the supply and demand chain hard. Prices across the country skyrocketed. Some prices being as high as $5.99 per gallon at some gas stations in the states of Georgia and North Carolina. President Joe Biden declared a state of emergency. The President urged people to stay calm and not panic buy.  This would spike prices further as we’ve seen. Believing the situation would resolve and supplies would last, given time and moderation. Although, worried consumers still lined up at gas stations to avoid being without gas.

With consumers buying and deliveries halted or slowed, gas ran out and prices went up more. Many consumers even began stockpiling gasoline in fear of an ongoing shortage. They loaded up containers of different kinds. This created greater demand and drove the prices higher.

Impact to Canada and the World

The Colonial Pipeline is operational again, but they experienced gas shortages. The President authorized gasoline to come in from other areas and sources of the world. In an attempt to increase supply. Deliveries would come first from unaffected states with large oil quantities. New York and New Jersey, for example, had gas even with the Colonial Pipeline shut down. They receive large oil shipments by water as well. These shipments could be from domestic and international regions. Overall, global oil markets are being stimulated.

There is a strain on the international oil supply caused by the initial cyberattack. As America replenishes their supply, they may be seeking oil from other countries. A likely resource would be Canada. Places like Canada may sell their oil to America in larger quantities. If they did help America replenish its supply, this would reduce the oil supply in Canada. This could cause inflation which would affect Canadian residents. More specifically, their local oil prices could spike too. However, this has not happened yet. Chances of steep inflation is unlikely since America is effectively restoring their oil. Chances are that the global oil market will stabilize soon meaning there is low risk for Canada.

Financially Preparing for Rising Oil Prices

With decreased supply and increased demand, oil prices will go up. In other words, prices of oil are experiencing inflation. Normally, the effects of inflation are short-lived. It is not uncommon for inflation to occur in a time of economic uncertainty. Such as during an international pandemic. The Colonial Pipeline shutdown shows us what we may be expecting in the next few months. Higher prices for other daily goods like oil. Here are some tips for managing inflation risks. If you are on a fixed income, you will want to budget, but be wise with your money and the opportunity.

When a recession hits, you generally want to save your money for emergencies. Emergency funds are for loss of employment or illness. In an inflated economy, there is more opportunity. You will want to make your money grow with inflation not hold it in a savings account for emergencies. Always keep a safety net but an inflated economy could open the door for your own economic growth.

If you invest in the stock market; keep your portfolio diversified. Having many stocks in different companies keeps you in a strong position. One stock may take a dip but you will benefit in a rising market. Stocks that pay dividends will be a good option to expand your income. Investing in commodities like organic grains, feed ingredients, dairy ingredients, and forest products. Or real estate will allow you to ride with the inflation instead of falling victim to it.

In general, try not to panic when inflation occurs. Don’t panic sell or buy because it could put you in a worse financial position. Inflation is almost always temporary. It’s a matter of getting through the short term.

When preparing for a recession, it’s helpful to understand current trends. This is true for any unknown upcoming financial event. Prior to the pandemic, Canadians acquired and held onto enormous debt. More specifically, credit card debt.

However, the COVID-19 crisis appears to have awoken Canadians. Trends show that individuals across the nation improved their personal finances. Credit card debt recently fell to six-year low. But consumer debt has increased to $2.08 trillion, or by 5%. This may be alarming, but it’s not entirely the fault of Canadians. Mortgage and homeownership costs have increased immensely due to hot housing markets. These costs have increased by a whopping 41.2% in the last year. To compensate for the rising costs, Canadians are turning to home secured lines of credit. The Office of the Superintendent of Financial Institutions (OSFI) is introducing a new stress test too. This intention is to cool down the housing market and related costs.

As mentioned earlier, non-mortgage related debt is declining. But uncontrollable costs related to housing is rising. This still indicates that Canadians are making better financial decisions amidst the pandemic. Part of this was a result of hefty government support. But a lot of this aid has ceased. This means that Canadians need to find another way to remain financially stable. Hopefully this becomes easier as the economy opens up.

If you aren’t already, you should focus on paying down unsecured debt. More specifically, credit card debt. By reducing your unsecured debt, you will be better able to handle financial crises in the future. For example, rising oil prices or recessions. It is wise to only rely on debt when you absolutely need to as opposed to carrying it indefinitely.

Inflation Isn’t Forever

Inflation comes and goes. A good economy always experiences some level of inflation. Economies want an upward projection. Deflation means a downward trend, which affects employment and opportunities. An inflation which is too high puts everyone at risk of not being able to afford anything.

There is a “not too hot, not too cold” place we want our economy to be with inflation. The Colonial Pipeline shutdown and gas shortages are a sign of coming inflation. It will impact people in the short term. But, the pipeline is operational again. Oil markets will level out and put us in the sweet spot we want to be in again. Ride out the current situation. When you feel ready, take advantage of the opportunities that come in a growing market.

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