Global Markets: Crude Prices Could Climb Beyond $200 a Barrel

Oil prices have a strong bearing on many economies. That is why a slight increase can have a significant impact on inflation. Transport for example relies on a low oil price to make travel affordable for many people—a vital factor that spurs economic growth.

However, the most crucial part of oil price increases is manufacturing. Many chemical and machinery companies use oil as a raw material. A rise in the price will influence the consumption of the goods in the market and oil trading activities, according to this source. While oil remains one of the most relevant factors of production, increased production of the commodity can hurt oil-producing companies.

Therefore, a balance must exist in oil production to protect the companies that drill the commodity and other industries affected when oil prices surge.

Global Oil Prices—What Is the Current Situation?

Oil prices fell to their lowest amid the COVID pandemic in 2020 when lockdowns were strict; the instruments traded at $36.61 per barrel, according to the international benchmark Brent. The fall was between April and June 2020 when demand for the commodity was low. Many companies closed down, and people stayed at home—making only a limited part of the world economy oil-reliant.

The historic fall in oil prices prompted the coalition of the oil-producing countries, made up of 23 states, to take immediate action to protect their downsides. The amount of oil in the world economy was now lower. Lower oil production at the time curtailed a further fall of the prices to another historic figure.

Fast-forward to 2021, countries started coming out of the lockdowns quickly, meaning the consumption of oil rose at unprecedented levels and oil companies could not keep up with the demand.

Effect of a Sudden Surge in Oil Demand after the End of Lockdowns

By April 2021, oil demand had bounced back to 90 percent of pre-pandemic levels, but production still lagged.

In 2018, OPEC supplied about 31.58 million barrels daily to different parts of the world. However, during the pandemic in 2020, the figure had fallen to 23.61 barrels. In the USA, a similar pattern rocked the oil markets, as production fell from about 12 to 10 million barrels per day.

However, the situation took a dramatic turn when countries started coming out of lockdown. Oil prices rose steadily and touched the $90 mark for the first time in many years. The 2014 average was the last time oil prices had surged to over $90.

Tension in Europe—Effect of This on Oil Prices

Compounding the oil issue is the ongoing destabilization in the eastern part of Europe by a continuing war. The two countries in the conflict, especially Russia, are a vital part of the world economy in oil and gas production.

However, sanctions imposed on Russia by Europe and the total ban of Russian oil by the USA have pushed the oil prices to new limits of over $100 per barrel, according to Brent Crude. Further, the escalation of oil prices because of the war comes when the world is battling a pandemic and increasing inflation. Could this situation push the oil prices further and into the $200 territory?

Oil Prices Could Hit $200 Per Barrel

Germany’s intent and that of most of Europe is to get rid of Russian oil as long as the war in Eastern Europe continues. The UK and the US share a similar sentiment. Most of the world that relies on Russian oil, but is against the war, is looking to take a similar approach. The unprecedented loss of Russian supply without a clear roadmap on where to get new supply is a factor that could push prices to highs of $200 per barrel.

Conclusion

Oil prices are an important consideration in the direction many economies take. A slight increase can have devastating effects on consumers because of a surge in the commodity’s price. COVID and now the war in Eastern Europe have escalated oil prices to highs similar to those seen in 2014. With new sanctions cooking for Russia, the prices might hit $200 a barrel.