Oil market: Conflict between recovery and energy transition

Abstract

The article considers the place of oil in the energy balance of developed and developing countries during the shocks associated with the technological progress, business cycles, climate policy trends, the pandemic of 2020, and the sanctions of 2022. The results reveal the stability of the demand for motor fuel in the post-pandemic recovery as well as the improvement of the position of oil companies. The study examines the multidirectional impact of climate policies: reducing oil demand and discouraging investment in oil production. In addition, our research considers sanctions and a partial oil embargo as a kind of forced industrial policy leading to the reorganization of the world’s oil production, delivery, and consumption systems, as well as the uncertainty in investment and an increase in energy prices. The stability of the demand for motor fuel in the post-pandemic recovery and the improvement of the position of oil companies are shown. The duality of the influence of the climate policy is considered: the reduction of relative oil demand, as well as the deterrence of investment in oil production. For a mature industry that provides high returns to investors, this means a normal change in the investment function from expanding capacity to increasing payments and market capitalization. The goal-setting conflict between energy security and the preservation of the planet’s climate is deepening. The fundamental question: how much government policy can change the natural processes of transformation, how quickly and at what cost, remains unresolved. Energy is proving to be one of the key touchstones for the ability of the world’s elites to coordinate on issues of sustainable development of the world economy and the preservation of the planet’s climate.