It will take years for the oil and gas market to recover from the 'mother of all shocks,' Harvard economist says

• Oil and gas prices have been affected by the "mother of all shocks," a Harvard economist says.
• Energy prices have seen wild swings since the pandemic, and the impact is still being felt.

Oil and gas prices are stuck on a roller coaster caused by the "mother of all shocks," as the supply-demand imbalance from the pandemic is still roiling energy markets, says Kenneth Rogoff, a top economist.

The Harvard professor and former International Monetary Fund chief economist pointed to the wild ride that oil and gas prices have taken over the past few years, with energy prices plunging in the wake of the pandemic and skyrocketing when Russia began its full-scale invasion of Ukraine.

Brent crude plunged as low as $14 a barrel in 2020 before soaring to a peak of $133 a barrel in June 2022. Similar swings were seen in US gas prices, which plunged to a low of $1.77 a gallon in 2020 before peaking around $5 a gallon in 2022, according to the Energy Information Administration.

Energy prices have eased in recent months, with Brent trading around $80 a barrel and gas prices cooling to around $3 a gallon. That's largely due to fears of a coming recession in the US and the potential impact on demand.

But over the long term, oil and gas prices are expected to trend higher — and prices are set to continue to see big bouts of volatility as the unprecedented shock from the pandemic continues to roll through the market.

"When there is an energy shock, it can take a huge price change to clear the market. And the pandemic was the mother of all shocks, bringing about the biggest sustained shift in demand since World War II," Rogoff said.

The world's total oil demand was estimated to have risen 2.3 million barrels a day last year, according to the International Energy Agency. By 2050, demand could skyrocket as high as 42%, per an EIA estimate.

More energy giants are investing to ramp up their crude-oil production, with the US seeing more than $100 billion of oil mega-mergers in 2023. But it could take years for those investments to fix the industry's chronic undersupply problem, some experts have warned — which means prices are probably climbing higher for the time being.

"In the longer term, energy prices look set to rise unless investment picks up sharply, which seems unlikely given current policy guidance. Supply and demand shocks will most likely continue to roil the energy market and the global economy," Rogoff said.

Higher crude demand has been a boon for US oil producers, with production reaching an all-time high in 2023 as firms raced to fill the world's expanding appetite for crude oil. The US is estimated by the EIA to churn out an average of 13.2 million barrels a day in 2024 and 13.4 million a day in 2025, eyeing new records for at least the next two years.

This story was originally published in January 2024.