Expert reveals factors that determine current increase in oil prices

Expert reveals factors that determine current increase in oil prices
# 25 June 2021 13:52 (UTC +04:00)

Oil demand in the world may return to pre-pandemic level in late 2022 or in 2023, Deputy Head of Events and Public Relations Department of SOCAR told APA-Economics.

According to him, the coronavirus pandemic will remain in history as one of the most negative factors affecting the world economy, including oil and gas markets. In the beginning period of the pandemic, there was an assumption that economic recovery may start only after the invention of an effective vaccine against COVID-19. So, from the end of last year invention of an effective vaccine against COVID-19 increased optimism in the markets and led to an increase in oil prices.

I. Ahmadov also noted that from the beginning of this year oil prices increased by more than 40% and continue to increase. The current rise in oil prices is mainly due to two factors: easing of lockdown conditions and increasing demand for fuel and energy due to the general economic recovery, the other factor is OPEC+ decisions which restricted production and severely reducing oil supply.

“Many observers, as well as numerous oil companies, forecast that a rise in the price of oil to USD 100 per barrel. Others expect the development of oil prices in the USD 60-80 corridor. Oil demand may return to pre-pandemic level in late 2022 or in 2023,” the expert stressed.

In general, according to I. Ahmadov we can see the last “rise” in oil prices this decade. In 2030, as a result of the rapid development of alternative energy sources, it is expected that oil demands will start to decrease. So, the next decade looks like an opportunity for our country to do preparation works for the post-oil period, gaining a significant share of oil revenues.

According to him, over these 10 years, the most important factor that can lead to an increase in oil prices is the reduction of investment in the discovery and development of new oil fields in the world: “So, as the world community prefers to renewable energy, governments in various countries are promoting such energy projects. However, transition to renewable energy will continue for a long time and therefore, the temporary shortage of renewable energy in the market may coincide with the shortage of oil production, this may lead to higher oil prices in a few years.

Last year, as many shale oil companies in the United States went bankrupt, it may take a long time to resume production. Weak competition by US in the market may encourage policy of OPEC + countries focused on high oil prices,” I Ahmadov added.

“Of course, forecasts on the increase of oil price may not come true,” the expert noted.

According to him, in the new perspective, the scenarios that can affect the fall in oil prices are the following:

-Delay on the vaccination process and a return to a period of economic recession as a result of many people refusing to take vaccines is not completely ruled out

-The revival of shale oil production in the United States and new investments in this area may lead to an increase in world oil supply;

-If shale oil production in the United States increases, it is not an exception that some OPEC + countries may choose to lower their prices below $ 40 by significantly increasing their production in order to put pressure on their US rivals again.

“In the long perspective, expensive oil means that alternative energy is more profitable. And this will lead to greater investments in the development of alternative energy technologies, accelerate research and development in the field of renewable energy and ultimately the beginning of the post-oil era,” concluded I. Ahmadov. 

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