Saga of Expensive Fuel

The harmfulness of using fossil fuels is a topic that we hear from time to time, like an evergreen, always at the right moment and just to let the elimination system make one think about what seems to be the perfect alternative.

The 21st century, which only a few decades before its beginning was expected to bring flying cars and vacations in outer space, has been talked about in some, reasonably, most acceptable option, as the moment when the use of oil will end, with the inevitable sequel story of extinguishing the splendor of Middle Eastern luxury and wealth.

If we take a look at the evolution of the oil sector, as well as the numerous and increasingly frequent challenges of the new age, we can clearly see the processes that the tobacco industry went through not so long ago, as it has undergone significant transformation over the past few years, that was significant in terms of changing the business model, but not the results it gave in reducing the percentage of smokers in the total population.

Most tobacco companies have not made significant progress in eliminating cigarettes and other risky products, but in switching smokers to alternatives where the health risk is somewhat lower. However, in such phases of transformation, with the significant funds invested and monitored, there is too little space left to draw logical conclusions.

At a time when climate change and global warming are the two biggest reasons for concern when it comes to environmental protection, the story of the use of petroleum products turned into a factor within the equation that calculates the number of deaths associated with these events simply does not support healthy logic, nor basic arithmetic.

If we just add the creation of jobs conditioned by exponential productivity growth in numerous areas, especially during the past decade, which are related to the use of petroleum products, and each life saved in this way, it is an additional “plus” in mathematical expression whose result is persistently trying to be negative.

The reason for this comparison is not to justify the unwanted effects of the oil industry, just as it is not the case with the tobacco industry as well, but to emphasize the nature of insisting on alternatives when everything seems to announce a complete revolution in this area and to remind how reactionary they are and how much the idea of renewable energy for a long time cannot be realized broadly.

When the governments of countries that make money from the oil industry in any part of the production chain are included in this story, it is almost impossible to hide the elements of attempts to protect the interests of those who will present themselves hiding from showing that they are tightly connected with the alternative.

Just because there are good reasons to criticize, especially the excessive use of something, in this case fossil fuels, it does not mean that it is necessarily a harmful or useless investment.

From this point of view, it doesn’t matter whether you are an angry opponent of fuel use except in really necessary situations, or you see the oil industry as a whole, it is clear that investing in “black gold” has never ceased to be one of the most attractive investment moves.

Oil and gas can, not only, at least occasionally, bring investors a profit on price changes, but they are increasingly relying on oil trading to protect themselves from the inflation.

As in the tobacco industry, which was banned from advertising and spreading smoke in public spaces, the focus on the type and mode of making of tobacco products was much smaller, so leading players managed to find an alternative in a short time, therefore many investors from the world of oil in eras of forcing alternative energy sources have fewer motivation to invest money in new oil platforms, thus gaining an additional value for their invested capital.

Being demotivated to invest in this area also leads to a reduction in supply. In a post-pandemic world, where one cannot be motivated by an additional competitiveness in this area, oil companies will have the opportunity to be more profitable than ever before, regardless the fact that this is not a lasting phase.

The formula is simple – in the post-pandemic world, where the desire for green energy will be further awakened, the volume of fuel production will not be able to grow, but the demand will increase with each new recovery, which will result in further price growth.

So, the price of fuel has only started to move upwards at the beginning of this year, and this trend will continue for some time, with minor fluctuations, even when the use of petroleum products returns to the level that existed before the pandemic, as in some markets it is already the case.

Interest in oil futures has grown sharply since the beginning of the year, because investors hope that the time of expensive energy is yet to come, and such investments are especially motivated by inflation and the need of big players to protect themselves from its consequences.

For those who do not belong to the group of big players, this simply means that almost everything they buy will be more expensive for a while – not necessarily because of rising prices, but because the value of the money they have at their disposal, will decrease as a consequence of quantitative easing programs.

The article is the part of the series of research into post-pandemic economic recovery 2021