Looking at the last decades, the price of oil has never moved in a straight line. In the 1970s, the turning point was a supply shock and geopolitics: the 1973 embargo and subsequent tensions led to price spikes that changed thinking about energy security in the West.
In the 1980s, there were periods of oversupply and declines, and then the market entered subsequent cycles – sometimes driven by demand (global boom), sometimes by supply (new deposits, new technologies), and sometimes by crises.
See also: Alert on the oil market. “Global energy markets are on the verge of disaster”
However, the most “cinematic” episode occurred during the pandemic. In 2020, the WTI contract settled at negative levels. This was the result of a combination of a collapse in demand and a physical problem with storing the raw material in the USA. The mere possibility of a negative price came as a shock to many, but it highlights an important truth: in the short term, the price of oil can become detached from intuition as the market collides with logistical constraints..
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Oil Price – How High Can It Go?
The question is, where is the price ceiling? Oil price forecasts are a rewarding but risky sport – because they depend on events that cannot be modeled like inflation or GDP. That is why we will find significant discrepancies in the reports of banks and agencies.
Among the bullish (high) forecasts that have graced the loudest headlines in recent years, it is worth recalling Bank of America's warning from March 2022: in the scenario of a sharp cut off of Russian supplies, the bank indicated that oil prices could shoot up to around $200. per barrel.
See also: There is no end to the crisis in sight. 500 million barrels disappeared from the market
Similarly, at the end of 2021, JP Morgan signaled the risk of “overshooting” prices: it indicated levels of $125. in 2022 and $150. in 2023, arguing, among others, supply tensions and the limited real ability of OPEC+ to quickly increase production.
Importantly, such numbers from forecasts are not an “oracle”only a description of conditional scenarios. All it takes is one factor – such as a blockage of a key transport route – to shift the entire probability distribution in the short term.
Can the price of oil rise forever? Where is the “ceiling”?
There is one answer to the above questions in the strict sense: no, oil prices cannot rise forever. Not because someone enters the “maximum price” into the table, but because the self-braking mechanism works: the more expensive the oil, the stronger the incentives to reduce demand and increase supply (or look for substitutes). This “ceiling” is therefore movable and depends on how quickly the economy, technology and politics respond.
The simplest way to put it is in three layers: physical foundations, political decisions and financial market reactions. EIA, describing the factors shaping oil prices, emphasizes the role OPEC supply, production limits and, above all, capacity that can be activated quickly in the event of a crisis. When there is a lot of this cushion, the market feels safer and the risk premium decreases. When there is little, each conflict, sanctions or infrastructure failure causes greater nervousness and price spikes.
See also: Russian oil continues to flow. There is a voice from the EC. “They shouldn't benefit”
What would determine the “big and long” price increase? Most often from a combination of several events at once. Example scenarios in which the price of oil may climb high (though still not “indefinitely”) look like this: firstlya long-term disruption of supply at a critical point (war, blockade of the strait, sanctions covering a large volume of raw materials) with at the same time low free production capacity of OPEC – then any shortage of barrels is “irreplaceable” in the short term.
Second scenario: years of underinvestment in mining and infrastructure, which means that even with high oil prices, new projects do not appear quickly, and the market has to “buy out” demand with price (i.e. cause savings and a recessionary cooling effect).
Third scenario: a spike in demand with supply constraints – e.g. a very strong economic rebound in Asia with simultaneous production cuts.
In such conditions, forecasts of the order of $150-200 per barrel they cease to be fantasy. They would then become the result of a simple “missing barrels” calculation and risk premium.
Oil price. Who decides where the ceiling is?
Whether oil prices reach record levels will not be decided by one person or one institution, but rather by the balance of forces. The greatest influence has: OPEC+ as a cartel/supply coordinator (extraction limits), with the key role of states with real power. This is what they come up with governments and political blocs through sanctions, embargoes, the release of strategic reserves and regulations.
The next piece of the puzzle is non-OPEC producers (especially those who can increase production faster) and – in the background – central banks and the dollar exchange rate, because oil is priced in the American currency.
In practice, a price “ceiling” appears when high prices begin to destroy demand faster than the market loses supply: companies and consumers reduce consumption, political pressure increases, substitutes appear (efficiency, electrification, changing the transport mix), and producers intensify investments.
However, history shows that before this ceiling is triggered, oil can still “shoot through” – and it is this time between shock and adjustment that is the most painful for drivers and the most fascinating (and risky) for investors.
Note: The information contained in the text is for informational purposes only and does not constitute an investment recommendation, information recommending or suggesting an investment strategy within the meaning of applicable regulations, or any other form of advice regarding the purchase or sale of financial products.
