Due to recent events in Israel, the price of Brent crude oil has risen from $84 to $88 per barrel. This marks the largest single increase in the price of oil over the past six months. While the impact of oil prices on global economies remains significant, it’s considerably less than in previous decades. The energy intensity of the world’s economies has decreased by 60% over the last 40 years.
Any escalation of tensions in the Middle East invariably leads to a surge in oil prices in this vital oil-producing region. Recent incidents in Israel have directly prompted this increase. Brent crude oil, traded in London and originating from the North Sea fields, jumped from $84 to around $88 per barrel, representing the steepest rise in prices over the last six months. The situation in China also affects oil prices. The nation is considering implementing new economic stimulus packages to achieve its economic growth targets. As one of the most significant consumers of oil, a faster growth rate in China naturally increases demand for oil and its prices.
However, it’s essential to note that while oil remains crucial to the global economy, its significance is notably less than in the past. Sustained high oil prices have driven the development of technologies that reduce its consumption. $90 oil did not plunge the world into recession, as was the case in the 1970s, even though the inflation-adjusted oil price is the same as it was fifty years ago. Over recent decades, the energy intensity of the world’s economies has fallen by an average of 60%, due to the development of alternatives (wind/solar energy) and substitutes (natural gas).
The energy required to produce one unit of GDP has decreased by about 1.5% annually since 1990 in the world’s largest economies, according to Enerdata. This trend results from technological advancements, increased production efficiency, and a higher proportion of the service sector in economies. The efficiency improvements in the USA, China, and Germany were 63% over the last thirty years. Europe now boasts one of the world’s lowest energy intensities, 40% below the global average, which significantly helped avoid an energy crisis after the outbreak of the war in Ukraine. Energy-independent USA stands at the global average, while China, with a substantial manufacturing industry, is 30% more energy-intensive than the world average. Oil exporters, Taiwan, and Korea are the least energy-efficient, with the UK, Italy, and Spain being among the most efficient.
Though currently, global oil price changes don’t directly translate to prices at Polish petrol stations, there’s no doubt that in the coming weeks, prices will adjust to align with global rates, potentially resulting in a fuel price increase of 1-2 PLN per liter. Higher oil prices essentially act as an additional tax on consumers. In the USA, it’s estimated to be as much as $100 billion. This poses a threat of higher inflation expectations. However, today’s high oil prices are less daunting than in the past. While OPEC limits production, it does so excessively. Demand is sensitive to higher prices, which self-corrects over time, limiting further price increases.
Author: Paweł Majtkowski, eToro analyst in Poland