Harvard Professor: The oil and gas markets will take years to recover

• Large fluctuations in energy prices in recent years
• Harvard professor: pandemic “mother of all shocks”
• Energy prices expected to rise in the long term

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Kenneth Rogoff, Harvard professor and former chief economist at the International Monetary Fund, believes that the oil and gas markets will still need time to return to normal levels. According to Business Insider, he referred to the extreme fluctuations in oil and gas prices in recent years. The corona pandemic initially caused energy prices to collapse, but Russia’s war of aggression against Ukraine caused them to skyrocket.

Ups and downs in oil and gas prices

In 2020, when the corona pandemic paralyzed the world, the price for a barrel of North Sea Brent temporarily fell to as much as 14 US dollars. Meanwhile, U.S. gas prices hit a low of $1.77 a gallon that same year. In June 2022, the Brent price went up to $133 per barrel. Gas prices also reached highs in 2022. According to the Energy Information Administration, they climbed to about $5 per gallon, Business Insider reports.

Energy prices have fallen significantly again in recent months. The Brent price is currently trading at around $79.15 per barrel, gas prices are at $1.97 per gallon (as of February 7, 2024).

The falling oil prices have recently been explained, among other things, by the recent price development of the US dollar. The US currency was boosted by surprisingly strong data from US labor market and recent statements by Fed Chairman Jerome Powell against rapid interest rate cuts. The strength of the dollar, in turn, makes crude oil traded in US dollars more expensive on the market, which slows demand and weighs on prices. A high supply of crude oil from countries outside the OPEC oil cartel also put pressure on prices. Despite the recent strong US economic data, there are also fears of an impending recession in the USA, which could possibly have a negative impact on demand.

Experts expect energy prices to rise in the long term

However, Harvard economist Rogoff expects energy prices to rise in the long term “unless investments pick up sharply, which seems unlikely given current political guidelines.”

According to estimates by the IEA, global oil demand increased by 2.3 million barrels per day last year – demand could increase by up to 42 percent by 2050. And even as more energy companies invest to increase production, some experts warn, as Business Insider reports, that it could take years to solve the industry’s undersupply problem. So prices are likely to rise for the time being.

However, oil and gas prices are likely to continue to experience periods of high volatility. “Supply and demand shocks will most likely continue to disrupt the energy market and global economy,” Rogoff said.

“When an energy shock occurs, it can take a huge price shift to clear the market. And the pandemic was the mother of all shocks, leading to the largest sustained shift in demand since World War II,” Business Insider Rogoff says.

Editorial team finanzen.net

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