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Oil and gas prices have been hit by the “mother of all shocks,” says a Harvard economist.
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Energy prices have seen huge swings since the pandemic, and the impact is still being felt.
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“If there is an energy shock, it may take a huge price change to clear the market,” said Kenneth Rogoff.
Oil and gas prices are stuck on a rollercoaster caused by the “mother of all shocks” as the supply-demand imbalance caused by the pandemic continues to roil energy markets, says top economist Kenneth Rogoff.
The Harvard professor and former chief economist of the International Monetary Fund pointed to the wild ride oil and gas prices have been on in recent years, with energy prices plummeting in the wake of the pandemic and skyrocketing as Russia began its all-out invasion of Ukraine. .
Brent crude fell to a low of $14 per barrel in 2020 before rising to a peak of $133 per barrel in June 2022. Similar swings were seen in U.S. gas prices, which fell to a low of $1.77 per gallon in 2020 before peaking around $5 per gallon. in 2022, according to the Energy Information Administration.
Energy prices have fallen in recent months, with Brent trading around $80 a barrel and gas prices cooling to around $3 a gallon. This is largely due to fears of a coming recession in the US and the potential impact on demand.
But over the long term, oil and gas prices are expected to rise – and prices will continue to experience large periods of volatility as the unprecedented shock of the pandemic continues to roll through the market.
“If there is an energy shock, it may take a huge price change to clear the market. And the pandemic was the mother of all shocks, triggering the largest sustained shift in demand since World War II,” Rogoff said.
Total world oil demand is estimated to have increased by 2.3 million barrels per day last year, according to the International Energy Agency. According to an EIA estimate, demand could increase by up to 42% by 2050.
More and more energy giants are investing to boost their crude production, with the US facing more than $100 billion in oil mega-mergers by 2023. But it could take years before those investments can solve the sector’s chronic shortage problem, some experts warn. – meaning prices are likely to trend higher for now.
“Over the longer term, energy prices appear likely to rise unless investment picks up sharply, which seems unlikely given current policy guidance. Supply and demand shocks will most likely continue to roil the energy market and the global economy,” Rogoff said.
Higher crude demand has been a boon for U.S. oil producers, with production hitting a record high in 2023 as companies raced to fill the world’s growing crude appetite. According to the EIA, the US is estimated to produce an average of 13.2 million barrels per day in 2024 and 13.4 million barrels per day in 2025, with new records expected for at least the next two years.
This story was originally published in January 2024.
Read the original article on Business Insider
