Beware Of Sharp Fluctuations In World Oil Prices

The world crude oil market price has been hovering around $40 per barrel for quite a while, seemingly undisturbed, but actually there are hidden currents. Especially as the US election is approaching, we need to be on guard against sharp fluctuations in the world oil price.

The largest recent "grey rhino" outbreak has been the continued spread of COVID-19 in many parts of the world, especially the second severe outbreak in Europe, where some governments have failed to implement strict restrictions, leading to a sharp increase in the number of infected people. Countries including France, the United Kingdom, Switzerland, Belgium and Italy are tightening measures to contain the spread of the epidemic. It's worth noting that crude oil prices have remained firm over the past week, spurred by upbeat data and good news. One of the most important pieces of news is that Opec is likely to extend its 10-million-barrel production cut through 2021. In a phone call, the leaders of Saudi Arabia and Russia both stressed the importance of continued Opec cooperation. This is also an important reason for the recent stabilization of crude oil prices.

Research shows that in the history of the world economy, a 10 per cent increase in GDP should generate a 5 per cent increase in fossil fuel consumption. Long-term demand trends for oil and other forms of fossil fuel consumption suggest that the industry is going through a long decline. Starting in the 1970s, as a result of the energy crisis and geopolitical tensions, oil prices rose sharply, with the consequence that energy consumption lagged behind economic activity and the economy shifted from the production of energy-intensive goods to the production of knowledge-based goods and services. From 2000 to 2019, world GDP grew by 70%, while energy consumption increased by 46%, while oil demand increased by only 29%. Energy consumption per unit OF GDP continued to decline significantly, and energy consumption pattern and structure continued to be innovated.

Although the market outlook is very bleak, the transport fuel market is not going away anytime soon. Demand for jet fuel, for example, is still good despite the current slump in the air transport industry. A recent report predicted that the global aviation market would grow at a compound annual rate of 3.4 per cent by 2027. Plastics and petrochemicals are another potential growth area. In fact, it's an area that the oil industry has been eyeing, worth $400 billion, as a major source of revenue.

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