Recently, international oil prices have been continuously rising under the stimulation of increasing geopolitical risks. In the coming decades, oil will still be indispensable, but the structural transformation of global clean energy replacing fossil fuels is already underway. We need to find a balance point between supply and demand in the energy transition, and try to avoid serious structural supply-demand contradictions that may lead to energy shortages.
When the world economy is under high cost pressure from inflation, international oil prices are also constantly rising under the stimulation of increasing geopolitical risks, which can be described as adding insult to injury.
On Tuesday (February 22), stimulated by the escalating tensions between Russia and Ukraine, London Brent crude oil futures prices rose to $99.50 per barrel during trading, reaching their highest level since 2014. As of the close of the day, the price of light crude oil futures for March delivery on the New York Mercantile Exchange closed at $92.35 per barrel, an increase of 1.4%. Analysts predict that oil prices will soon rise to the level of $100 per barrel.
The market is highly sensitive to geopolitical events that may lead to supply shortages, which is the reason for the significant fluctuations in oil prices at present. However, judging from the current market speculation situation, predicting the short-term trend of crude oil prices is no longer important. The key is how to ensure stable economic and social recovery in the context of high oil prices.
Why do most markets believe that an increase in oil prices is inevitable? There are many reasons, such as the severe lack of investment in oil and gas exploration in traditional fields in recent years, the decline in energy storage in major oil producing countries, the strong recovery of oil demand due to economic recovery, and the short-term uncertainty brought about by geopolitical conflicts. And a more significant reason is that the global "flood of water" caused by the pandemic has resulted in the most severe inflation in decades, with rising costs of raw materials, commodities, and upstream and downstream production. The combination of inflation and rising energy prices has led to a slowdown in global economic growth. The main topic of this year's first G20 finance ministers' meeting is also how to deal with inflation and curb rapid price increases. Many economists believe that the relationship between crude oil prices and inflation is not as close as before, but it may exacerbate the impact of inflation on economic growth. Research models indicate that an oil price of $100 per barrel will increase inflation rates in the United States and Europe by approximately 0.5 percentage points; If the price per barrel reaches $150, it will cause the inflation rate to soar above 7%, and the world economy will also stagnate.
The price increase caused by high oil prices should not be underestimated. According to statistics, fossil fuels including oil, coal, and natural gas account for 80% of global energy consumption, and the average price of a basket has increased by more than 50% compared to a year ago. Research shows that consumers' expectations of future inflation are partly based on the actual price increases they have recently experienced, with fuel prices being particularly representative. The Consumer Price Index (CPI) released by the US Department of Labor in January rose to a 40 year high, and US consumers' inflation expectations for the next year almost doubled to 4.8%, compared to 2.6% in the same period last year. The continuously rising oil prices have caused great headaches for the US government, and expectations for the Federal Reserve to accelerate interest rate hikes are constantly rising.
In the coming decades, oil will still be indispensable. Up to now, petroleum products account for about 3% of global GDP and remain one of the most important commodities in the world. However, the structural transformation of global clean energy replacing fossil fuels is already underway, and we need to find a supply-demand balance point from the energy transition to avoid serious structural supply-demand contradictions that may lead to energy shortages.
In this process, it is crucial for the world to achieve stable oil supply or lower energy prices, and indirectly control inflation. The United States has repeatedly pressured Saudi Arabia to increase production and release 50 million barrels of crude oil from strategic oil reserves, while other major oil consuming countries are also taking measures to stabilize oil prices. The US Congress even proposed to suspend the federal gasoline tax to appease public dissatisfaction with the high gasoline prices. The International Energy Agency has repeatedly called for OPEC+to increase supply to the market. The gap between OPEC+production and its production quota widened to 900000 barrels per day in January, coupled with low world crude oil inventories, leading to increased volatility in crude oil prices.
The global economic and social landscape has undergone fundamental changes, and the oil crisis of the 1970s will not repeat itself. The page of "oil shortage" in human history has been turned over, and sustainable and renewable clean energy will replace it. Accelerating energy transformation and pursuing green development are the inevitable path and the current trend in the world. Statistics show that global green energy investment expenditure increased by 27% year-on-year in 2021, reaching a record high of $755 billion. At the same time, mergers and acquisitions of companies in the green energy sector are quite active, with more and more emerging energy industries such as hydrogen production projects, electric vehicles, and biofuels receiving attention.
It is expected that oil prices will continue to fluctuate for a considerable period of time, and the situation of increased demand and tight supply will be difficult to solve in the short term. Therefore, it is necessary for the international community to work together to ensure stable energy supply and provide sufficient impetus for economic growth.