The global oil market has had a tumultuous year. In response to the global COVID-19 pandemic, oil prices fell precipitously as demand for travel decreased; oil briefly traded at -$37 per barrel in early 2020 before prices recovered. Now, with massive vaccination programs underway, lockdowns lifted, and a gradual return to life as usual, it seems likely that oil prices will rise in the immediate future.
Indeed, the global price of oil has by now mostly rebounded from the lows of the pandemic; current prices are roughly $70 per barrel, their highest level in more than two years, and some investors have speculated that they will reach $100 per barrel by the end of the pandemic. For its part, the Organization of Petroleum Exporting Countries (OPEC) has cut its output during the pandemic, helping to keep prices from crashing altogether. Even as OPEC has signaled that input will increase in the coming months, the International Energy Agency has suggested that production will not reach demand until 2026. Similarly, energy consultancy group Wood Mackenzie has indicated that spending on oil extraction fell substantially in 2020.
Over the longer term, crude oil will likely remain in high demand; in addition to fuel, it will be refined into other petrochemicals, including those used for plastics. However, there has been a noted decrease in new oil investments from Wall Street, which regards climate change – and public sentiment surrounding climate change – as powerful incentives to steer clear of such investments.
While the OPEC countries, nominally isolated from these political pressures, have a great ability to produce, their capacity is not limitless, and they have already shown their willingness to hold back on pumping to keep prices high. Outside of OPEC, many oil firms are cash-strapped from the pandemic, dependent on investments that high-profile investors are increasingly loath to give.
A final consideration is the increasing use of renewable energy, both in electricity generation and in cars. In terms of market capitalization, electric car manufacturer Tesla is now the most valuable car company in the world. (In January, with stocks at record highs, it had a larger market cap than the next five competitors.) As other car manufacturers indicate they will follow, transforming their cars to fully electric by the 2030s, the long-term future of oil is uncertain – although, for the time being, it does not seem as though it is going anywhere.
Trevor Filseth is a current and foreign affairs writer for the National Interest.