The world is going through an oil crisis at the moment. The prices of crude oil and petroleum have exceeded all the records of past decades. Oil is an essential aspect of the world’s economy, and the current situation is a worrying sign. The effects have started showing already with rising inflation rates all over the world. In this piece, we have covered the reasons for this rapid increase in the prices of oil.
With the arrival of Covid-19 in 2019, the world went into complete lockdown. The production processes, the transport industry, everything was on a complete stop. A lot of people lost their jobs, which increased savings. According to simple economics, oil consumption decreased, which decreased demand. On the other hand, reserves had an ample supply of crude oil and natural gas. Therefore the prices slumped. In April 2019, the oil prices even reached below 0 for the first time in history. The reason was that the lockdowns had nullified the demands.
Since the situation has settled with the vaccine forthcoming, the oil demand has increased. The economies around the world have started their resumption. The industries and transport have started their operations and need oil. On the other hand, the oil supply is not enough to meet the unanticipated increased demand for oil. This demand-supply disequilibrium has increased prices all over the world. The prices are expected to grow even more due to increasing demand and tight supplies.
Texas experienced hurricanes, Ida and Nicholas, in early 2021, which caused damage of more than $1 billion. Oil infrastructure was severely damaged due to these disasters. The global oil reserves are mainly located in USA and Russia. These hurricanes badly affected the global oil supplies, as the absolute pressure transferred to Russia. This increased pressure was not able to cope up with the demands, and thus, prices increased.
INCREASING PRICES OF NATURAL GAS
Due to the same demand-supply disequilibrium, the prices of natural gas have also seen a dramatic surge. Therefore, power generation industries have found oil as a cheaper alternative. This shift has added to the ever-increasing crude oil demand, and thus, is another reason for the increasing prices of oil all over the world.
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