Oil and gas prices are on a roller coaster ride caused by “the mother of all shocks,” according to a Harvard economist.
Energy prices have seen wild fluctuations since the pandemic and the impact is still being felt.
“When there is an energy shock, it can take a huge price change to balance the market,” Rogoff said.
Oil and gas prices are stuck on a roller coaster caused by the ‘mother of all shocks’ as the supply-demand imbalance due to the pandemic continues to disrupt energy markets, according to economist Kenneth Rogoff.
The Harvard professor and former chief economist of the International Monetary Fund highlighted the the madness of oil and gas prices have gained momentum in recent years, with energy prices plummeting in the wake of the pandemic and skyrocketing when Russia began invading Ukraine.
Brent crude plunged as low as $14 per barrel in 2020 before climbing to a high of $133 per barrel in June 2022. Similar fluctuations were seen in U.S. gas prices, which plunged to a low of $1.77 per gallon in 2020 before peaking around $5 per gallon. in 2022, according to 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 looming recession in the United States and its potential impact on demand.
But over the long term, oil and gas prices are expected to trend upward – and prices will continue to experience large periods of volatility as the unprecedented shock caused by the pandemic continues to ripple through the market.
“When there is an energy shock, it can take a huge change in price to balance the market. And the pandemic has been the mother of all shocks, causing the largest lasting change in demand since World War II” , Rogoff said.
Total global oil demand increased by 2.3 million barrels per day last year, according to the International Energy Agency. By 2050, demand could skyrocket up to 42%according to an EIA estimate.
More and more energy giants are investing to increase their crude oil production, with the United States making sure of it. $100 billion in oil company mega-mergers in 2023. But these investments could take years to solve the industry’s chronic undersupply problem, some experts have warned — meaning prices are likely to rise for now.
“Longer term, energy prices are expected to rise unless investment recovers strongly, which seems unlikely given current policy guidance. Supply and demand shocks will most likely continue to disrupt the energy market and the global economy,” Rogoff said.
Rising demand for crude has been a boon for U.S. oil producers, production reaches record level in 2023 as companies raced to meet the growing global appetite for crude oil. The United States is expected to produce an average of 13.2 million barrels per day in 2024 and 13.4 million in 2025, aiming for new records for at least the next two years, according to the EIA. estimated.
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