The development of the oil price on the world market is reminiscent of the period just before the outbreak of the financial crisis in 2008. Then oil was rising in price similarly to now. Measured through this lens, the world is now at about mid-March 2008.
At that time, the price of Brent crude oil was close to $110 per barrel. On Thursday, however, oil was still trading about five dollars higher. However, the price trend is almost identical to 14 years ago. Oil is now the most expensive since early September 2013. At that time, the price was on a downtrend, but now we are still heading upwards.
“The oil price has completely detached from the marginal cost of oil production due to the extreme scarcity in the market,” Ehsan Khoman, an analyst at Japan’s MUFG Bank, told Reuters. In his opinion, the fears of geopolitical developments in the Russian-Ukrainian crisis play a crucial role. The price of oil could easily go even higher.
The dwindling oil supplies in Western countries in recent months have also added fuel to the fire. Moreover, according to the Organization of the Petroleum Exporting Countries, it is not possible to effectively increase oil production outside Russia at the moment. There is an assumption that the current situation will not last long and therefore it would not be worthwhile to expand production in the short term.