Why oil is so expensive (spoiler, Russia is not to blame for now)
The price of oil, like that of all other goods, depends on supply and demand. The market is king, especially for a now rather standardized commodity for which major innovations are not expected. The problem is that if demand is elastic over time, so is supply. Covid or the economic and war events can greatly vary the first, but the second takes time to adapt and this marks the sudden changes in the very strong prices that we have seen in the last two years. we have gone from the negative futures (that is, you paid to sell oil) of April 2020 , to the current over $ 100 a barrel.
we see the trend of global oil production
During the Covid crisis, with the lockdowns affecting the industries of advanced countries, oil production fell significantly, well below 80 million barrels per day. A necessary reduction, because demand had plummeted. The problem is that oil does not come out of a tap that opens and closes at will: its extraction requires investments and time. So even as the industry woke up from epidemic slumber, energy production failed to follow this upturn except the slow and insufficient way. This can be seen even better by considering the oil produced per capita in the world:
The annual production of barrels per capita in the world fell from 4 to 3.5 per year, a sharp decline of 12.5% that has not yet been compensated. Part of this decline can be offset by greater fuel efficiency, but a substantial part cannot, and this drives the price up.
Normally this imbalance would have been compensated in a couple of years, but now the war in Ukraine intervenes: the ban on Russian oil leads to a reduction in the production of one of the world's heavyweights in the hydrocarbon sector. So the greater supply will have to come mainly from other countries, but this will take more time and more investment, thus resulting in more expensive and scarce oil for a longer period of time.
Oil prices will drop as supply adjusts to demand, but this will not happen anytime soon and sanctions on Russia will delay this.
Thanks to our Telegram channel you can stay updated on the publication of new articles of Economic Scenarios.
The article Why oil is so expensive (spoiler, Russia is not guilty for now) comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/perche-il-petrolio-e-cosi-caro-spoiler-la-russia-per-ora-non-e-colpevole/ on Mon, 02 May 2022 09:00:14 +0000.