The Rise in International Oil Prices

International oil prices have continued to rise in the past few days. As of March 30, the price of light crude oil futures for May delivery on the New York Mercantile Exchange rose $3.58 to close at $107.82 per barrel or 3.43%; the price of Brent crude oil futures for May delivery in London rose $3.22 to close at $113.45 per barrel or 2.92%. Due to the limited nature of oil resources, a large number of countries in the world are unable to fully meet domestic oil consumption from their own oil production. And most of them rely on imports to balance domestic demand. Therefore, the rise and fall of international crude oil prices are closely related to domestic refined oil prices in each country, and the rise in international oil prices will lead to a corresponding rise in oil prices in these countries. One of the main reasons for the current high international oil prices is the supply of crude oil.
The first is the increase in oil consumption. At the beginning of the COVID-19 epidemic, many countries have suspended the production of many enterprises for the prevention and control of the epidemic, which has impeded national economic development. However, after 2022, Europe and the United States have lifted the epidemic control and are prepared to resume economic production. As the blood of the modern industry, oil is naturally an indispensable part of the production process, and as production resumes oil consumption will continue to increase.
The second is inadequate oil production. As there is no sign of a ceasefire in the Russia-Ukraine conflict, the market is concerned about the implementation of a new round of sanctions in Europe and the United States. Therefore, Saudi Arabia and the UAE have stated that they will stick to their current production policy and are not willing to increase production. In addition, the Black Sea crude oil pipeline berth damage due to storms and an attack on a crude oil facility in Saudi Arabia have increased market concerns about the decline in crude oil supply. Several major OPEC and Arab oil producers have produced less oil than the amount agreed on their ongoing production increase plans for nine consecutive months, while U.S. shale oil is also lower than before the outbreak and is not expected to increase production much.
Moreover, the situation is also coupled with the continued global geopolitical turmoil since 2022. The conflict between Russia and Ukraine has caused the West to tighten sanctions against Russia, a major resource exporter, adding to the turmoil in the international crude oil market.
Many factors have combined to create the current imbalance between supply and demand in the international crude oil market, resulting in higher prices for international crude oil. For non-oil powers, most of the domestic oil consumption depends on imports, so the price of domestic refined oil products has soared in just six months.
At the same time, the rise in international oil prices will also bring a series of adverse impacts.
With the rise of international oil prices, the price of natural fossil energy will also show an upward trend. As industrial production is inseparable from the support of energy, therefore, the high oil price could be regarded as an energy crisis for enterprises with large energy demands and industrial countries.
The increase in oil prices for companies will directly lead to higher production costs, which in turn will lead to lower profits. If they want to maintain their profits, companies will have to raise the prices of their products. Higher prices will not only weaken the market competitiveness of their products but will also reduce consumer demand and put inflationary pressure on the country.
Additionally, the oil price may also have a considerable impact on some other commodities. For instance, the global fertilizer food crisis, to a certain extent will also be affected by the energy crisis. The current price of oil, on the other hand, cannot find an effective solution in a short period of time as it is influenced by multiple factors that lead to an imbalance between production and demand. Therefore, it is probable that the international market will experience a long period of energy shortage.
At present, in the world’s major industrial countries, their dependence on oil is huge, it is easy to be affected by the fluctuations in international oil prices. The countries can introduce relevant policies and regulations to reduce the adverse effects of rising oil prices. By finding a balance in the change of raw material prices, reduce the domestic oil with the fluctuations brought by the rise and fall of international oil prices, to maintain stable domestic oil prices. In addition, the adoption of new energy to replace part of the oil energy can also reduce part of the domestic energy demand and alleviate the energy crisis.