Global oil prices are expected to continue rising

Wednesday July 14 2021
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By Business Daily Africa

Oil prices have recently been rising due to a number of factors which include changing supply/demand dynamics, geopolitics, energy transition, economic recovery, and the ever-present commercial speculation.

In the past week, oil prices fluctuated in the $75-80 per barrel band, which is a huge jump from $60s a couple of months ago and from below $50 most of last year. In fact, prior to 2015 prices were as high as $100, a level that future prices appear heading to.

Whereas high prices are welcome by oil producing countries and companies, they are a major predicament for countries which are net importers of oil. Many countries, are yet to come out of the socio-economic downturn caused by Covid-19 pandemic, and are struggling to balance their budgets in the face of reduced taxable revenues.

High oil prices can only slow down economic recovery due to higher energy costs. For consumers, higher transport and cooking costs, and other consumer goods impacted by high oil prices will all be an expensive experience.

Even the “vaccinated” nations of the west (US, EU, and UK) which are frantically trying to fast track economic recoveries, see the rising oil prices as disruptive to economic recovery, especially travel and tourism.

President Biden last week appealed to the oil producers’ group (OPEC) to increase oil supply to hold oil prices down. A bit contradictory for a president who has been pushing for less oil usage to restrict climate change. President Biden’s dilemma is political- how to quickly revive the economy after a successful vaccination exercise ..


Talking of the climate change, a dilemma exists on how to reduce production and use of oil when replacement renewable low carbon energy is not fully in place. If not correctly synchronised, the energy transition will mean managing oil supply and demand on the margin, a situation which will inevitably result in higher future oil prices.

While oil companies continue to experience pressure and capital starvation from investors and financiers, the oil producing countries are directionally upping their production to maximise oil revenues in a future of anticipated reduced oil demands.

So, what prompted the recent price hikes? The oil producers – OPEC and Russia — have over the past two years-controlled oil production to stabilise prices at levels they deem necessary to fund their national budgets.

Early this month they could not agree on how to implement previously planned oil production increases, with one producer – UEA— insisting on a higher share of that increase.

Absence of consensus made the market to speculate that the planned supply increase would not materialise (or be delayed) and this caused prices to tighten. This is typical market speculation, often based on “gut-feel” rather than factual information.

However, the OPEC dilemma has since been countered by market estimation that oil demands will be slower to revive as the Covid delta variant surges across the world. The Covid pandemic and specifically the number of vaccines administered have become key variables in global oil demand and price prediction, as these indicate level of global economic and oil demands recovery.

Oil markets and prices will remain impacted by a cocktail of variables, among them the Covid pandemic, economic revival, climate agenda, and oil producing nations agenda to maximise revenues and market shares. Putting these variables in an algorithm to reliably predict oil prices will remain a tall order, leaving oil price trajectories to best judgments and market speculation. And these are currently pointing to oil prices gradually rising in the future.