Global Oil Prices Soar, Gasoline Costs Double

International oil prices have skyrocketed, with gasoline prices doubling. What exactly has caused this? The truth might surprise you.

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Entering 2022, international oil prices have gone crazy again, with Brent crude oil futures prices hitting a historical record of $88.7 per barrel, the highest price since October 2014; just in the last month, international oil prices have risen by 20%.

At the same time, the surge in international oil prices has also led to: a 6% increase in China's 92-octane gasoline prices within 30 days, a 2% increase in U.S. gasoline prices, and Exxon Mobil estimates that by March, U.S. gasoline prices will surge by another 20%.

The Organization of the Petroleum Exporting Countries (OPEC) has even stated: it is a foregone conclusion that global oil prices will break through $100 per barrel in 2022.

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At this point, some people might ask: hasn't the media said that the global pandemic is gradually receding and world shipping is returning to normal, so why are international oil prices still rising sharply?

I have seen many "mainstream domestic financial media" attribute the surge in oil prices to the recent turmoil in oil-producing countries, which is divided into two aspects:

First, energy supply countries centered on Iran and Russia have had serious geopolitical confrontations with energy-demanding countries such as the European Union and the United States, leading to supply restrictions for oil-producing countries like Iran and Russia (for example, Iran being sanctioned by the United States, making it difficult to sell oil), or transportation routes being cut off (for example, the Russia-European oil pipeline being repeatedly shut down and threatened)...On the other hand, energy countries centered around Kazakhstan and Saudi Arabia have erupted into internal chaos; Kazakhstan saw protests from oil workers, while Saudi Arabia was targeted by Houthi militants who attacked an oil facility in the country. These internal disturbances disrupted the normal oil production of the two energy nations, thereby reducing the global oil supply and driving up oil prices.

Does the "chaos in oil countries" lead to skyrocketing oil prices? There is some truth to this inference, but it is certainly not the most important internal factor; it can only be considered an external factor.

We must understand that the geopolitical confrontation between Iran, Russia, and Western countries is not a recent development; this tense situation has been ongoing for several years.

As for the so-called internal chaos in Saudi Arabia and Kazakhstan, which disrupted the oil production of the two countries, it was not severe, and it could even be said that it barely scratched the surface of their oil production.

Therefore, there is something more intriguing behind the main reason for the surge in oil prices.

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Logically speaking, the surge in oil prices is mainly caused by "a sharp increase in oil demand against the backdrop of a strong global economic recovery, while supply is insufficient"; to suppress oil prices, it would be sufficient for oil-producing countries to significantly increase their production.

The strange part lies here: in the past two years (2021 and 2020), Western countries have repeatedly asked the oil-producing countries' organization - OPEC to increase oil production to alleviate the problem of surging global oil prices.

But while OPEC verbally agreed: it could be considered. In practice, their approach was like squeezing toothpaste, increasing production just a little bit each month, which was far from meeting the surge in demand. They watched helplessly as oil prices continued to rise.

Even when OPEC was pressed by Western countries, they retorted angrily to Western officials: if you want more oil, you have the ability to extract it yourselves.Why does OPEC have such a big grudge and dare to confront its major clients? The core reason lies in the fact that since entering the 2010s, Europe and America have actively promoted global "carbon neutrality" and "green energy strategies." What are "carbon neutrality" and "green energy strategies"? In essence, they are about replacing fossil fuels such as oil and natural gas with clean energy sources like nuclear, solar, and wind power. If you are constantly thinking about cutting into OPEC's business, then why should I help you in times of crisis?

PS: An important aspect of the global carbon neutrality strategy is to actively replace fuel-powered vehicles with electric vehicles. If all fuel-powered vehicles are replaced by pure electric vehicles, it could cut global oil demand by 60%; replacing half could also cut it by 30%. The goal of replacing half is expected to be achieved first in the EU and China by 2030.

Dear readers, by now you should see that global carbon neutrality is the core reason why OPEC oil-producing countries are unwilling to significantly increase production on a large scale. From the perspective of OPEC oil-producing countries: the long-term global demand for oil is going to be downward; the surge in demand caused by the pandemic is a temporary phenomenon; when the pandemic subsides and the economies of developed countries in Europe and America recover, they will continue to promote carbon neutrality.

Since death is inevitable, why not make a quick fortune before dying? This is the mentality of OPEC and the reason why, despite the surge in global oil demand, OPEC insists on not significantly increasing production on a large scale.

The transition from fossil fuels to clean energy, led by carbon neutrality, is the fundamental reason for the recent surge in oil prices. It is the internal cause; the pandemic has only served as a catalyst and an amplifier, which is the external cause.

The internal cause is the root of change, and the external cause is the condition for change, just as temperature (external cause) can make an egg (internal cause) hatch into a chick.

At the same time, the high global oil prices are expected to continue intermittently for several years in the future, which is the pain of energy transition. During the transition period, new energy sources are not yet able to replace fossil fuels as the main supply of energy; however, the fossil fuel interest groups already know that the future will be challenging. Therefore, the fossil interest groups (such as OPEC) must necessarily do two things:Firstly, there should be no large-scale construction of "new oil production lines" to avoid the situation where, due to a decline in future demand, the new production lines cannot even recover their costs. This will inevitably affect the oil production capacity during the energy transition period, leading to supply tensions.

Secondly, while fossil fuels still dominate, it is advisable to make as much quick money as possible, because the opportunity may not last.

The practice of fossil fuel interest groups to strengthen their short-term profits during the transition period is the cost of transition; and these transition costs will ultimately fall on consumers. Just as when oil prices rise, gasoline prices will increase, plastics will become more expensive, and the costs of dyes and pharmaceuticals will also rise, all of which will eventually be paid by you and me.

"Carbon neutrality" and a "green Earth" are indeed beautiful concepts; however, they are not achievable merely by chanting slogans. They require contributions from all of us and for us to pay the price.

In economics, it is said that there is no such thing as a free lunch – that's the principle.