BAKU, Azerbaijan, August 6
By Nargiz Sadikhova - Trend:
The oil (and natural gas) prices are likely to continue to soar for a while, but some factors will restrain the trend eventually, Brenda Shaffer, a faculty member of the US Naval Postgraduate School told Trend.
Commenting on the rise in oil prices, Shaffer noted that oil is high for several reasons and likely to climb even higher in the coming weeks and months.
"One of the reasons that oil is high is that the Covid and the post-Covid world have created new demand sources for oil. People fear to return to public transportation, so car sales, including used cars (which are generally less fuel-efficient), are soaring around the world. In addition, the increased use of plastics (disposables, medical equipment, masks, etc. has created increased oil demand (for production of plastics). Demand for plastics was globally on a downward trend before Covid and that has now been reserved. Both trends—increased private vehicle driving and increased plastic use—are likely to continue for a long time after Covid," she said.
Second, Shaffer added, a major reason that the oil price is high is that US production didn’t return despite the price signal.
"This is for several reasons, including Biden Administration limitations that are making it riskier to produce oil and gas in the United States. And, the fact that few ever made money off of the US shale production, so there is little investment appetite to go back to shale in the US. This trend will affect both global oil and natural gas prices because much of the natural gas in the US is associated gas (gas produced while producing oil). So, if less oil is being produced, naturally less gas is produced as a byproduct," she said.
In her words, the oil (and natural gas) prices are likely to continue to soar for a while, but some factors will restrain the trend eventually.
"Sanctions are likely to end on Iran and Venezuela and thus modest amounts of new oil volumes will enter the market. This will not be a flood, since Iran is actually already exporting a lot of oil (with no US response at this stage) and Venezuela’s production is limited by its own oil sector problems," she said.
Also, Shaffer noted, eventually, a global recession will emerge and thus demand for oil and other commodities will decline. The US and many other governments are spending money they don’t have, but at some time the music stops and the dance ends, she added.