Oil and natural gas prices are expected to continue rising if the speculated invasion by Russia of Ukraine does happen.
The price of oil is already at 90 USD per barrel. This is the highest it has been in the past 7 years because of speculation on the possibility of war. However, this can reach up to 100 USD per barrel if the Russian invasion does occur. An increase in oil and natural gas prices becomes troublesome not just for a few countries, but for the whole world. The elevated inflation that is already happening now will persist, and countries that import energy from Russia might suffer from an energy crisis.
Oil and Natural Gas Prices Have Been Increasing
The increase in oil and natural gas prices has already been observed in the past months.
Libya, one of the countries that supplies crude oil, petroleum gas, and refined petroleum, has already had trouble keeping up with the demand for such. The country produces 499,397 barrels of oil per day and is ranked as the 30th highest producer of oil in the world. The majority of the oil it produces is exported to different countries in Europe, such as Italy, Germany, and Spain.
Because of problems in the production of this resource within the country, coupled with an increasing demand for it as more foreign countries are reopening, oil and natural gas prices have gone up. However, this change will be miniscule compared to what may possibly ensue if a war in Eastern Europe occurs. As well as the restrictions that might be placed on Russia by the USA following this situation, that could dampen the ability of Russia to produce energy.
Around 10 million barrels of oil each day are produced by Russia. Europe depends on the country for the majority of its natural gas needs, with this resource necessary for power plants and heat across the continent. Russia also supplies 10% of the world’s demand for oil.
The United States of America does not depend as much on Russia for oil as European countries do. Only around 3% of its demand, or 700,000 barrels of oil per day, is imported from Russia. However, this does not mean that the country will not be affected by the situation in Russia since the price of oil is determined by the global market.
Regular gasoline is now priced at $3.50 USD in the USA, which is 20 cents more than what it was in the last month. It is also 1 USD higher than its price last year. Diesel prices are not faring any better. They have been increasing by a penny per gallon per day for the past few days. This, however, is not just a penny. Because for every increase in regular gasoline prices by a penny, a total of four million dollars is spent by consumers in the country.
Furthermore, there was a 2% increase in oil markets in the USA last Monday. The prices in Europe increased by more than 3 times this value, with the increase in natural gas prices going as high as 6%.
When oil and natural gas prices do continue to increase, the rural and working-class populations will be negatively affected the most. These individuals usually need to travel between far areas with the use of vehicles that are not fuel-efficient. Because of this, more of what they earn will be spent on energy expenses. This means that their disposable income is further decreased, which may affect their quality of life.
Tom Kloza, the Global Head of Energy Analysis in the Oil Price Information Service, said that “we are going to push the envelope with inflation that infiltrates every nook and cranny of the economy. I’m most worried about diesel. It doesn’t provoke a public outcry like gasoline, but it can be a silent killer of commerce and profits.”
Can an Energy Crisis Be Prevented?
The United States of America has been increasing its production of oil in the past few weeks. Furthermore, political support is present as the current administration is looking into their options so that they can meet the demand for oil. A nuclear deal with the country of Iran is being considered because it would possibly supply the world with up to 1 million oil barrels per day.
At the same time, the USA has been providing assistance to European countries. The US administration has come to a deal with Japan and other Asian countries to go without a number of shipments. Because of this, the liquefied natural gas that should have been used by Asian countries was redirected for the use of Europe.
However, the supply of oil across the world has still not been enough to meet the demand. Many countries that are part of the Organization of the Petroleum Exporting Countries (OPEC) have not been able to produce as much oil as they have done before. There have also been unfavorable political and environmental conditions in Ecuador and Kazakhstan that have hindered these countries from having a seamless operation in the production of oil.
The political situation in Libya does not seem to be promising either. With tensions increasing within the country, more than 300,000 barrels of oil supplied to foreign countries are threatened with cessation.
With insufficient supply to meet the growing demand, the price of oil can go beyond 100 USD. Scott Sheffield, the chief executive of Pioneer Natural Resources, said that “If Putin invades, then oil rises over 100 USD to 120 USD a barrel. If Biden removes sanctions on Iran, then there will be a 10 USD drop.”
Because of this, many are hoping that the tensions between Ukraine and Russia will be settled through diplomatic means. This would alleviate any pressure brought about by the current situation and, as a result, reduce oil and natural gas prices.