As oil and gas prices continue to ride a roller coaster due to the lingering effects of the pandemic, investors and market analysts are closely monitoring the situation. The “mother of all shocks,” as described by Harvard economist Kenneth Rogoff, has created a supply-demand imbalance that is still causing significant disruptions in energy markets.
The impact of the pandemic on energy prices has been significant, with wild swings seen in oil and gas prices over the past few years. From the drastic drop in prices in 2020 to the sharp increase following Russia’s invasion of Ukraine, the volatility in energy prices has been unprecedented. Brent crude plummeted to $14 a barrel in 2020 before surging to $133 a barrel in June 2022, while US gas prices dipped to $1.77 a gallon in 2020 before peaking around $5 a gallon in 2022, according to the Energy Information Administration.
Although energy prices have stabilized in recent months, with Brent crude trading around $80 a barrel and gas prices averaging around $3 a gallon, the long-term trend is expected to be an upward one. With fears of a potential recession in the US impacting demand, prices are likely to see continued volatility as the effects of the pandemic ripple through the market.
Kenneth Rogoff emphasized that significant price changes are needed to balance the market in the wake of an energy shock. The unprecedented nature of the pandemic-related disruptions has led to the largest sustained shift in energy demand since World War II, with the International Energy Agency estimating a 2.3 million barrels per day increase in global oil demand last year.
As energy giants ramp up their crude-oil production investments, the industry is grappling with a chronic undersupply issue that could take years to address. Despite more than $100 billion in oil mega-mergers in 2023, experts warn that prices are likely to continue climbing as supply struggles to meet demand in the near term.
Looking ahead, Rogoff predicts that energy prices will rise unless there is a sharp increase in investment, which currently seems unlikely given policy guidance. Supply and demand shocks are expected to persist, causing further disruptions in the energy market and the global economy.
In the US, higher crude demand has been a positive for oil producers, with production hitting record highs in 2023. The EIA estimates that the US will produce an average of 13.2 million barrels per day in 2024 and 13.4 million barrels per day in 2025, setting new records for at least the next two years.
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