Oil’s Return to Normalcy

Just a couple of months ago, oil was selling on the international markets at upwards of $115 a barrel, and the gas prices at the pump (did you notice?) were ranging around 4-5 dollars a gallon. Now you can fill your tank at less than $3 a gallon in most places, and barrels of oil are trading at around $76. If you look at the 5-year price chart for oil, you can see the Covid pandemic and the Russian invasion of Ukraine having rather dramatic (and opposite) effects on oil prices, and the trend since mid-2022 has been a return to normalcy.

Over the years, there have been a number of alarmist predictions about how the world is running out of oil, how temporary price increases were going to continue forever, etc., etc., and each time the global economy corrected itself and reduced the alarming trend to a blip on the screen. If there is a trend, it is that demand for oil will continue to decline as alternative energy sources become more popular, and as more automobiles are powered by electricity. According to the most basic economic theory, lower demand would mean lower prices.

In fact, you might be surprised to know that total oil production worldwide last year (89.88 million barrels a day) is actually lower than production levels in 2015. The peak came in 2019 (just under 95 million barrels) and has been incrementally declining ever since. We aren’t running out of oil, but we are very slowly reducing our need or demand for it.

Sources:

https://tradingeconomics.com/commodity/crude-oil

https://www.statista.com/statistics/265203/global-oil-production-since-in-barrels-per-day/