When will petrol prices start coming down? Will they ever come down? Apart from COE, these are the two foremost questions in the mind of motorists. Let us get straight to the point – and get the bad news over with: No. Based on what we know as of today, oil and petrol prices are going to remain high. Expect...
When will petrol prices start coming down? Will they ever come down? Apart from COE, these are the two foremost questions in the mind of motorists. Let us get straight to the point – and get the bad news over with: No.
Based on what we know as of today, oil and petrol prices are going to remain high. Expect prices of RON 95 to hover close to $3 per litre in the foreseeable future. In the short term, there could even be a further hike in prices.At the risk of oversimplifying, the crux of the issue is a mismatch between supply and demand – not enough supply to satisfy the demand – with the war in Ukraine of course, compounding matters. However, there are other significant factors at play as well. But before we get into these, here’s a quick look at the big picture for context., Russia is the largest exporter of oil – both crude and refined. In total, it exports around 8 million barrels per day of crude and refined oil worldwide. That could account for 8 percent of total demand worldwide in 2022, which the IEA projects to be 99.7 mb/d. Assuming ceteris paribus , the loss of Russian oil from global markets will drastically reduce available supply and lead to a spike in prices.Since keeping the supply of oil stable is the solution, why doesn’t the everyone just continue purchasing Russian oil?Almost the entire world is against Russia’s invasion of Ukraine and wide-ranging sanctions are in place against the country. As one of the largest energy exporters, the most painful way to punish Russia is for countries to purchase less or boycott its oil altogether . That said, Russian oil is still being shipped to customers as many term deals were made before the country invaded Ukraine. But when these deals expire, and if companies and countries stop buying from Russia, the IEA estimates 3 mb/d could be excluded from world markets.What about other oil producers? Other top producers such as Saudi Arabia and the United Arab Emirates could make up for the lost supply by increasing their outputs. But they and other oil producers are wary of ramping up production too quickly as this could lead to a glut down the road.It is easy for consumers to imagine that given record oil and petrol prices, companies would be scrambling to ramp up production to meet demand and increase their revenues.producers in the US have been exhorted to quickly boost production to help stabilise markets and prices. But extracting oil is not as simple as drilling into the ground and turning valves. In the US, even if an oil company uses its permits to begin drilling on federal land, oil won’t immediately come gushing out.What of existing wells and refineries then? Ramping up production takes manpower and materiel – resources which have been negatively affected by Covid-19 and supply chain issues. Another factor at play is a lack of investment in the oil industry, which is a result of focus on ESG.ESG stands for environmental, social and governance. In a nutshell, socially conscious investors consider a firm’s
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