Nobody wants oil any more and yet it is expensive. The dynamics behind it go much further than the war in Ukraine and can drive oil prices to unimagined heights.
In the short term, the war in Ukraine is the driving force. After targets in Ukraine were attacked, the price of oil rose above the $100 mark. There hasn't been a price that high since 2014. Triple-digit oil prices can almost be called extreme prices.
It is too early to assess what the war will mean for the oil price in the medium term. In general, the world cannot do without Russian oil. It is unlikely that there will be sanctions in this area.
To make matters worse, there is also a long-term problem. The last meeting of the OPEC+ countries was enlightening in this respect. Many governments were already worried about the high oil price before the latest developments and called for an increase in production. Not least the USA wants prices at the pump to fall. Coordinated oil reserves were even released in the USA and some other countries to lower the oil price. It has not helped.
What would help is an increase in supply. However, OPEC+ countries are sticking to their plan to increase production only gradually. Even this slow adjustment overtaxes the cartel. Despite higher output, more oil is not necessarily coming out of the ground.
At the last OPEC meeting, a statement was made for the first time. The chairman rebuffed calls for higher output, not because no one should, but because no one really can. OPEC has also underinvested in recent years.
The spare production capacity, estimated at over 5 million barrels per day, seems to be largely non-existent. Because too little has been invested, OPEC can do little about high oil prices. Instead, the finger is pointed at the USA. Shale oil companies there, which have been swing producers in recent years, should produce more.
In the US, shale oil production can be increased quickly, but no one wants to do it. Lessons have been learned from the disaster of 2014-2016. There was a lot of investment back then. Hardly any company was able to show a positive cash flow. A business model that permanently consumes more money than it earns cannot be successful.
Now people are saving. Since oil is a discontinued model in the long term, little is invested. Instead, as much profit as possible is siphoned off to pay dividends and buy back shares. In short, global production capacity is tight and little will change in the short term.
In the future, even oil giants like Exxon and Total will not invest tens of billions. It is about increasing returns and not about growth. Rising oil demand must be met from OPEC+, but even if more is invested now, it can only compensate for falling production volumes in the rest of the world to a limited extent.
The world may thus only be at the beginning of an energy crisis. Such crises happen regularly and are the predictable consequence of too little investment.
