Why oil prices have hit the stratosphere
The previous oil shocks were triggered by political events. After the flare-ups, typically involving price spikes of 100-300 per cent and lasting two to five years, the prices have tended to settle down either due to easing of supply pressures through better availability of the oil being produced and new explorations, or other developments such as better energy efficiency.
However, the present crisis is fundamentally different from the past ones and the high prices are set to be a part of our life for six reasons.
High government subsidies, artificially high demand. The global economy is expected to see a slowdown this year. The same is true for the US economy, which, according to the latest World Economic Outlook by multilateral funding agency International Monetary Fund, is expected to experience growth of 0.5 per cent for the year compared to the previous estimates of 1.5 per cent.
A global economic slowdown should mean lower demand for oil and, in turn, cooling of oil prices.
Image: Bharatiya Janata Party activists shout anti-government slogans protesting against a government hike in fuel prices | Photograph: Sajjad Hussain/AFP/Getty Images
Also read: Who is inflating the oil bubble?
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