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Explainer: Why did oil prices go from less than zero to a multi-year high?

SINGAPORE — For a brief period in early 2020, one ticker representing oil prices plunged to its lowest point in decades, while another even became negative.

A tanker is refilled with crude oil at the BP oil refinery in Hamble, near Southampton, southern England.

A tanker is refilled with crude oil at the BP oil refinery in Hamble, near Southampton, southern England.

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  • A barrel of crude oil now trades for around US$93, which exceeds the price before the pandemic
  • This is the highest price for oil since 2014, when it was more than US$110 on the Brent benchmark
  • In the push towards green energy, there was underinvestment in fossil fuel production, which affected supply
  • Besides cyclical demand pressures, recent geopolitical events such as the Ukraine-Russia conflict have contributed to the unabated hike
  • Experts said the oil rally will inevitably lead to inflationary pressures for Singapore, a net energy importer

SINGAPORE — For a brief period in early 2020, one ticker representing oil prices plunged to its lowest point in decades, while another even became negative.

As the Covid-19 pandemic grounded planes, halted trade and sent countries into lockdowns, pumping oil out from the ground became a loss-making business.

With many places now coming to terms with the coronavirus late last year, oil prices are rising once again. Many thought that this meant oil prices would rebound to around US$60 a barrel on the Brent crude futures, just as it was in late 2019 before the pandemic.

But since last August, the ticker kept climbing past that pre-pandemic mark, shocking industry players, ratcheting up cost pressures and casting a shadow over global economic recovery. 

Today, a barrel of crude oil trades for around US$93, the highest point since 2014 when it was more than US$110 on the Brent benchmark.

This is despite pledges by countries, including the United States and China, to release hundreds of millions of barrels from their oil reserves to alleviate the market pressure. The move barely made an impact, industry watchers said.

So what is driving this rally in oil and energy prices?

Speaking to TODAY, economists and oil analysts point to cyclical factors — such as blizzards and the current wintry weather conditions in many parts of the world — that led to increased energy demand. 

But there are also recent geopolitical events involving oil-producing country Russia, and longer-term structural shifts that have contributed to the unabated hike, they said.

Economist Song Seng Wun from CIMB bank said: “It’s kind of a perfect storm of events, simply put.” 


Demand for oil began spiking towards the end of last year, with cross-border travel resuming despite the spread of the Omicron variant of the coronavirus.

Supply, however, was unable to catch up.

In 2020, when disagreements between oil-producing countries as well as reduced demand for oil during the Covid-19 pandemic drove oil prices to unprecedented low, experts said that it then led to a cycle of underinvestment in oil-producing industries.

Fewer oil wells were dug, given the lack of profit incentive and the fear that pumping too much again will cause prices to collapse.

So, when demand would surge again when countries recover from the worst of the pandemic, the low supply led to inflated prices.

Mr Sanjeev Gupta, who is business consultancy EY’s Asia-Pacific oil and gas leader, said: “It's questionable whether they can (continue to) increase the capacity to meet the rising demand because of the relatively lower level of investments that are coming into play.”

At the same time, investors are also reducing their commitments in oil, gas and other dirty fuels as the zeitgeist has changed, analysts told TODAY.

Mr Song of CIMB said: “The green movement took hold among investors, but they pumped more funds into alternative and green energy, it still takes time. The pandemic also hiked up material costs, and caused production and human resource issues. 

“That meant alternative sources of energy could not be ramped up to meet energy demands today.”

Maybank Kim Eng's chief economist Chua Hak Bin agreed that the speed at which renewable sources are being developed is not fast enough, neither are the facilities in place, in order to substitute oil and natural gas.

Dr Chua said: “Unfortunately, this looks like it is going to be a longer-term issue, because this transition — where companies have stopped investing in (oil and gas) sectors — leads to shrinking supply.”

The current level of elevated oil and energy prices may therefore likely remain for a long time, he added.

With prices for oil and gas spiking now, could this incentivise fossil fuel producers to pump more? Possibly, given the track record of the Organization of the Petroleum Exporting Countries (Opec) in doing so, Mr Gupta said.

“But I think we obviously can’t contemplate what can happen… and we can expect any move (from Opec) to be a calculated move,” he added. 

Opec and its ally Russia, forming a group known as Opec+, has committed to raise supply by 400,000 barrels a day each month.

A report by the International Energy Agency in January also noted that crude production by Brazil, Canada and the US would reach record levels this year, raising non-Opec+ output by 1.8 million barrels a day.

DBS bank's economists Taimur Baig and Nathan Chow said in a commentary last month that the agency also expects Russia and Saudi Arabia to hit records if remaining Opec+ cuts are fully unwound.

Global supply could grow to 6.4 million barrels a day in 2022, "comfortably matching or exceeding the increase in projected global demand" as it recovers to pre-pandemic levels, the DBS economists said.


A major factor on the experts’ radar is the ongoing tensions in Europe, involving amassed troops at the border shared by Russia and Ukraine. 

With the continent at the brink of armed conflict, Dr Chua said that it will be no surprise if countries stockpile oil in case war breaks out. This will drive up prices as a result.

Mr Song said that the rising tensions may not have affected oil prices much if European countries were not dependent on the Russian oil pipelines, thus adding to the fear of supply disruption. 

Russia supplies about one-third of European natural gas consumption, used for winter heating as well as electricity generation, the United States-based Council on Foreign Relations said. If armed hostilities ensue, major oil and gas projects, such as Russia’s Nord Stream 2 pipeline to Germany, could be cancelled.

Other geopolitical events have also affected supply. In January, Yemen’s Houthi fighters took responsibility for a drone strike on the United Arab Emirates — the world’s seventh largest oil producer and the third biggest in Opec, pushing up oil prices further.

Be that as it may, the cessation of tensions in Europe over the Ukraine issue may help cool prices. However, analysts said that this may not be enough to offset other factors that are pushing prices up.


Already in Singapore, the surging crude prices are affecting prices at the petrol pump, even though petrol prices here closely track a different pricing benchmark instead of the per-barrel price of crude oil. 

As of Feb 7, 95-octane petrol costs up to S$2.76 a litre, while 98-octane petrol costs up to S$3.25 a litre. This is higher than last November, when prices were at an all-time high across the month, official data showed.

This could drive up inflation, too. Private transport prices, which are affected by petrol costs and vehicle prices, grew by 15.5 per cent last December, continuing a double-digit percentage point inflation that began last April.

Dr Chua from Maybank Kim Eng said that since Singapore is a net energy importer, it is exposed to the negative impact of rising oil prices, though not as much as other countries in the region given its smaller car population.

“It will be costly for those who drive cars and for businesses (where their margins) rely on electricity prices, such as data centres that are energy-intensive and so on,” he added.

Mr Gupta from EY said that since oil price hikes will inevitably lead to higher input costs for businesses, it could worsen inflation in Singapore. 

Higher inflation indicates a sustained rise in prices, which can mean that costs of living could go up. Standard of living falls if wages do not keep pace in such a scenario. 

“Unfortunately, energy is still very much a prime driver of our economy, so whenever oil prices rise, we can expect inflationary pressures to be there,” Mr Gupta said.

On the other hand, higher oil prices may also spur businesses to be more energy-efficient, producing the same output with less energy consumed, Mr Song said.

Or, businesses may be incentivised to reduce their dependence on fossil fuels and start investing in new sources of energy if they want to remain profitable, Dr Chua said. 

“I think sometimes, the relative high price of oil is precisely the driver for the shift towards renewables, to motivate firms to adopt greener practices, even though it may be costly and take a long time,” Dr Chua added.

Related topics

oil crude oil price OPEC Russia fossil fuel Covid-19

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