Is the rise in oil prices temporary or long-term

Beijing, 20 Jan (Xinhua) -- Whether the rise in oil prices is a temporary phenomenon or a long-term trend

Xinhua News Agency

Recently, international crude oil prices have continued to rise, of which the new York market crude oil futures prices hit the highest level since October 2014 on the 18th, causing the market to pay close attention. Many analysts believe that the tightening of crude oil supply and demand may continue in 2022, thus supporting oil prices, but there are differences of opinion on whether oil prices will continue to rise for a long time.

Three main factors push up oil prices

Experts generally believe that the recent rise in oil prices is mainly affected by the intensification of geopolitical risks, the easing of COVID-19 measures and the lack of production in oil-producing countries.

Abu Dhabi, the capital of the United Arab Emirates, exploded on the 17th with tanker trucks and a fire at the airport site. As the third largest oil producer of the Organization of the Petroleum Exporting Countries (OPEC), the UAE crude oil supply faces a real risk of disruption. In addition, the short interruption of an oil pipeline connecting Iraq and Turkey due to an explosion on the 19th and the unresolved tensions between Russia and Ukraine have also intensified the market's concerns about the interruption of oil supply.

Fu Qiang, academic director of the Chinese EMBA at the Nuscional University of Singapore Business School, said that the market has great anxiety about the escalation of geopolitical conflicts, reinforcing expectations of tightening crude oil supply in the future.

In a report, DBS Singapore noted that a series of supply disruptions and geopolitical instability pushed Brent crude futures in London above the $80-barrel mark.

In addition, the impact of the variant new coronavirus Olmikron strain on crude oil demand is not as severe as expected, and the relaxation of epidemic control measures in some countries has led to an increase in crude oil demand, thereby pushing up oil prices.

The lower-than-expected production in some major oil-producing countries is another factor in the recent rise in oil prices. OPEC and non-OPEC producers reached a production cut agreement in April 2020. Last year, the parties agreed to gradually increase production and raise the average daily total production by 400,000 barrels per month from August last year. However, some oil-producing countries have been unable to meet the standard due to insufficient investment and other reasons.

Temporary phenomenon or long-term trend?

How long will high oil prices last? Will oil prices break through $100 a barrel? There are currently divergent views from analysts and experts.

The International Energy Agency recently released a report pointing out that as major oil-producing countries expand production, crude oil production will gradually catch up with demand, the supply tension is expected to ease, and the upward trend of oil prices will also slow down. The report believes that if OPEC and non-OPEC producers continue to gradually withdraw from the production cut plan, the average daily increase in global crude oil production is expected to reach 6.2 million barrels in 2022.

UAE Energy Minister Mazrui told the media on the 19th that it will strive to complete the production increase target set by OPEC and non-OPEC oil producers last year, and is not worried about the "short-term" rise in crude oil prices.

Li Junhao, an economist at OCBC Bank in Singapore, believes that the possibility of Brent crude oil futures rising to $100 a barrel by the end of this year is increasing, and "supply continues to fail to keep up with demand, making the situation particularly tight."

Energy columnist Tsvetana Parasova wrote that growing geopolitical risks, combined with significantly limited capacity of OPEC and non-OPEC producers to increase production, mean that the market remains bullish on international oil prices.

Wu Bingbing, director of the Institute of Arab and Islamic Culture at Peking University, pointed out that in the medium and long term, the world is promoting the "double carbon" action, showing a decreasing trend in investment in the upstream development of traditional fossil energy, resulting in constraints on production capacity, which in turn brings the market supply to a relatively contracted state, superimposed oil consumption growth is expected to continue to heat up, or will bring about a window period of international energy prices.

At present, the world economy is still recovering from the impact of the epidemic and facing many challenges such as inflation. As an important industrial raw material, the impact of higher oil prices on the economy cannot be ignored.

Zhang Longxing, director of the oil business department of the Shanghai Oil and Gas Trading Center, believes that for China, the rise in international energy prices will lead to increased pressure on imported inflation, increasing production costs in manufacturing and other fields, thereby weakening the competitiveness of these industries.

Fu Qiang said that China is one of the world's largest consumers of crude oil, and rising crude oil prices will increase the cost of economic operation. (Participating reporters: Cai Shuya, Yan Jing)