Since the beginning of this year, the price of West Texas Intermediate (WTI) crude oil has remained above $80 per barrel for over two months and exceeded $90 for more than a month. In November, as oil prices hit new record highs and frequently approached the $100 mark, market volatility increased significantly. Although WTI has recently dropped to around $90 after a sharp decline, the foundation for high oil prices remains strong. It is expected that oil prices will continue to operate at elevated levels for an extended period, and even small price increases could push the benchmark back toward the $100 threshold.
When adjusting for U.S. dollar depreciation, current oil prices have already surpassed $70 per barrel. In addition to inflationary pressures, today’s oil prices are approaching levels seen during the second oil crisis. This clearly signals that we are now in a period of sustained high oil prices.
Looking back at the global oil market since 2002, international oil prices have nearly tripled, while the U.S. dollar index has declined by approximately 30% over the same period. Due to the weakening of the dollar, between 2002 and 2006, there was a 22.8 percentage point gap between the rise in USD-denominated commodity prices and those calculated using Special Drawing Rights (SDR). That period saw the dollar depreciate by 22.8% against a basket of currencies. This year, the dollar has also weakened by about 10% against the same basket. It is estimated that more than 30% of the increase in oil prices since 2002 can be attributed to the dollar's depreciation. After removing this "dollar depreciation premium," oil prices should have been over $70, but they were below $30 at that time. Compared to then, today’s prices are significantly higher.
Historically, the international oil market has experienced three major price surges. The first occurred during the 1973 oil crisis, when oil prices rose from less than $3 per barrel in 1973 to over $13. The second surge happened in the late 1970s and early 1980s, with prices climbing from around $15 to a peak of $39 per barrel in early 1981. The third significant increase occurred in 1990 during the Gulf Crisis.
Currently, the United States imports crude oil at around $80 per barrel. When adjusted for inflation, the real cost of imported oil during the second oil crisis reached $93 per barrel. During the Gulf Crisis, the price was below $52 per barrel. Clearly, current oil prices far exceed those of the Gulf Crisis, and the level of prices is reminiscent of the second oil crisis, creating a sense of "heightened vulnerability" at such high levels.
Global economic growth is expected to reach 4.8% to 4.9% next year, with oil demand increasing by 1.3 to 2 million barrels per day — a historically strong growth rate. On the supply side, non-OPEC production is underperforming, and OPEC’s output increases are slowing down. Non-OPEC production is expected to grow by only 1 million barrels per day next year, which is lower than the projected demand increase. The international community expects OPEC’s oil demand to rise by 1.34 million barrels per day this year, while OPEC itself anticipates a reduction of 230,000 barrels per day. As a result, OPEC’s willingness to increase production is limited. On December 6, OPEC announced it would maintain current output levels, and later suggested the possibility of production cuts.
Domestic consumption has risen steadily, while output growth has stalled, and OPEC exports have declined this year and are expected to continue falling in 2024. Historically, supply shortages occurred in 1999 and 2002, but this year, the supply shortfall coincides with high prices, indicating that the current supply-demand balance is unlikely to change quickly. Thus, high oil prices may remain relatively stable for some time.
An oil price inflection point could occur in 2010. Next year, the U.S. will hold a presidential election, and public sentiment leans toward a Democratic Party victory. If the Democrats win, they may take measures to intervene in oil prices in their second year in office, aiming to protect the interests of middle- and lower-income groups. At the same time, the U.S. dollar’s depreciation trend may be curbed. This could lead to a turning point in oil prices, aligning with the global economic cycle and the timing of large-scale oil investment capacity expansion. However, given the reduced volatility in global economic fluctuations in recent years, the decline in oil prices is likely to be moderate, possibly returning to around $60 as supply and demand normalize.
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