Expensive Oills Here to Stay

The world is struggling to produce all the oil it needs, and the impact on global economics and politics will be profound

- Lynn Doan & Will Kennedy

On July 6 the global benchmark for oil slid below $100 a barrel for the first time since April, raising the hopes of politicians, business owners, and drivers around the world that the days of high fuel prices were coming to an end.

We're not there yet.

In fact, the underlying dynamics of oil supply and demand point to a prolonged period of higher prices, lasting months if not years. Demand for fuel is still growing as the world picks up where it left off before Covid-19 lockdowns. There's a shortage of refineries to turn oil into fuel. And the world's largest oil producers are hitting up against the limits of what they can drill. All this as Vladimir Putin's war suppresses exports from Russia.

"The world has never witnessed such a major energy crisis in terms of its depth and its complexity," Fatih Birol, executive director of the International Energy Agency (IEA), said at a forum on July 12. "We might not have seen the worst of it yet-this is affecting the entire world."

The impact on global economics and politics is profound. A 41% runup in gasoline prices this year has already driven inflation in the US to the highest in a generation and helped put the Republican Party on course to retake Congress in this year's midterm elections. High fuel costs are sparking unrest in countries from Peru to Sri Lanka. The energy transition world leaders have been talking about for years is at risk of being sidelined.

At the most fundamental level, the world is now struggling to produce all the oil it needs. It's a sharp reversal from the spring of 2020 when the pandemic sent demand plunging to the lowest level in decades and crude prices fell below zero. Next year global oil consumption is set to surpass pre-pandemic levels, growing more than 2%, according to the IEA.