What is behind the surge in oil prices?

What is behind the surge in oil prices?

New York Goldman Sachs is now calling for oil prices to reach $100 a barrel by the end of the year and continue to rise in 2023, signaling a gas station price hike to come. Goldman Sachs and Morgan Stanley recently forecast oil prices above $100 a year, citing a lower-than-expected hit of the Omicron coronavirus variant and supply disruptions. Prices have traded below the $90 low for much of February, and even if tensions between Ukraine and Russia ease in the “best-case scenario”, oil probably won’t fall below $84 a barrel, according to one recent forecast from JPMorgan analysts.

There are concerns about rising oil prices, with one barrel of Brent crude oil, an international benchmark, rising to $80.69 last month. In 2020, Brent crude oil prices, a widely used global benchmark, averaged below $42 a barrel, an impressively low figure. The spot price of Brent crude oil, the global benchmark, started 2021 at $50/bbl (b) and rose to a high of $86/bbl at the end of October, before declining in the final weeks of the year.

Crude oil prices rose sharply in the third quarter of 2021 and continued to rise in October 2021, driven by increased demand, climate change-related supply disruptions, and production cuts by OPEC and its partners (OPEC+). Crude oil prices rose sharply in 2021 as rising COVID-19 vaccination rates, easing pandemic-related restrictions and a growing economy have seen global oil demand grow faster than oil supply. 

OPEC has been so successful that oil prices have risen steadily since Brent plunged below $20 a barrel at the height of the Covid-19 pandemic in the spring of 2020.

Crude oil prices have risen more than 60% this year on strong demand and confusing supply chains, prompting President Joe Biden to put pressure on Saudi Arabia and other exporters to ramp up oil output after cuts during the pandemic. The recent rise in natural gas and coal prices around the world has increased the demand for crude oil to meet energy demand. Oil prices were also supported by higher natural gas prices, which boosted demand for oil for heating and power generation.

Rising gas prices are an important factor in parallel with oil. Rising oil prices can also affect the supply and demand of commodities other than oil, thereby dampening economic growth. Natural disasters that can disrupt production and political unrest in oil-producing countries can affect prices.

In the electricity markets, high oil and natural gas prices are encouraging companies to turn to cheaper alternatives such as solar and wind power. On the one hand, high prices are holding back oil consumption: people may be more likely to buy fuel-efficient or electric cars, for example, or travel less. High prices provide income for oil companies and stimulate an increase in oil production. Of course, higher prices are likely to contribute to a significant increase in US shale oil production.

On the other hand, rising energy prices could start to dampen growth, while the new COVID-19 outbreak could also impact oil demand. That means investors are anticipating lower prices going forward, meaning $85 oil may not be enough, and increasing investment in new drilling and fracking is riskier. Another problem for producers is the “lagging” of the oil futures market – a market structure where prices in subsequent months and years are lower than current prices. It’s also important to remember that supply and demand for oil are both slow to respond to price changes in the short term, so if demand deviates slightly from the market, it may take a very large price change to restore balance.

Ultimately, you think there is a destruction of demand, there will be a large influx of fresh oil that will come as prices rise. It’s hard for me to predict in the long term something like this, how it will play out in destroying demand and oil, because there are alternatives that are ready for now or close to being ready for now. Now what has happened over the past four or five years or more is that there has been a significant supply disruption where many of these producers are unable to realistically respond to the growing demand for oil coming to the market.

We have the ability to use electricity and other renewable energy sources if oil prices get high enough. Now I think the transition to the euro will be much faster when oil prices hit those triple digits than in the past because the economy is the way it is, renewables become a lot more competitive when oil is $110-$120 a day. year per barrel.

For example, when Hurricane Katrina hit the southern United States in 2005, affecting nearly 20% of US oil supplies, the price of a barrel of oil rose by $13. For example, in July 2008, the price of a barrel of oil reached $128 due to turmoil and consumer fears about wars in both Afghanistan and Iraq. Until 2014, OPEC promised to keep the price of oil above $100 a barrel for the foreseeable future, but in the middle of that year, the price of oil began to plummet. In this case, the main reason for the cheapening of oil was OPEC, as it refused to cut oil production, which led to a sharp drop in prices. 

The sharp drop in oil prices in 2014 was due to lower oil demand in Europe and China, coupled with stable OPEC oil supplies. The surge in oil prices in the second half of 2007 and the first half of 2008 led many to believe that increased speculation in commodity markets played a role, and there is indeed evidence of activity in these markets. How monetary policymakers respond to the economic shock from higher oil prices may also play a role in the shock’s impact on growth and inflation.