Oil prices have certainly been on an incredible tear so far this year—jumping as vaccines are rolled out and demand mounts in major economies, particularly the U.S. and China. Both major contracts, Brent and WTI, are now sitting at highs last seen in late 2018, above $70/barrel, and are up between 40% and 45% this year, a clip so rapid it’s contributing to fears of rising inflation.

“You’re really only one or two events away from a material spike in oil prices,” Alex Sanna, the top oil trader at Glencore, said at a Financial Times event on Tuesday. Other traders, including from Goldman Sachs and the trading house Vitol, also said such a price spike was possible.

Whiplash markets

Medium term, several analysts warned that resurging demand paired with a lack of investment in new production by energy majors intent on cutting costs—and under pressure to shift capital away from fossil fuels and towards renewable energy—was likely to lead to higher prices.

But those warnings, and the rise prices have already seen, are symbols of the whiplash markets that have been a hallmark of the pandemic. Last year, oil demand saw a historic drop of 8.8 million barrels/day as cars stopped driving and planes stopped flying; prices even dropped into negative territory as producers and distributors effectively ran out of places to store oil (financial fireworks played a role, too.)

Meanwhile, “$100 barrel oil” is a landmark price that we haven’t seen since 2014, in the months before a collision between the U.S.’ exploding shale production and OPEC sent prices spiraling lower, for years.

Not everyone is convinced that $100 oil is an imminent possibility. Per Magnus Nysveen, head of analytics at Rystad Energy in Oslo, argues that predictions of a price spike to $100/barrel are based on the idea of a continual reopening as vaccinations roll out, and adds there is plenty of spare capacity to ramp up production if need be.

“We don’t see this happening, because oil demand still has 5 million barrels to go before it goes back to normal,” he said.

Not only is the global vaccination program not going at a U.S. pace worldwide (see: India), but current demand is also a product of a turbo-powered summer “driving season”, a seasonal pick-up as people hit the road on holidays. This year, that demand is likely higher due to the fact that most people can’t travel internationally, he argues.

OPEC can also choose to loosen up supply if prices go too high, while at a certain level, U.S. shale production also starts to roar back, collectively putting a cap on likely price rises over the long term.

But whether oil hits the $100 mark or not, stronger oil prices do raise questions for the future, and pace, of the energy transition.

Impact on renewables

In the past, strong oil prices have offered a mixed bag to renewables: they’ve given oil and gas companies (and regions and countries dependent on those revenues) huge profits, and little incentive to switch to less profitable sources of energy. On the other hand, they’ve created financial strain for regular people, making renewable energy—and things like recycled plastic—more affordable in comparison.

The world has also changed since 2014. Oil and gas companies, at least publicly traded ones, are under fresh waves of pressure from both shareholders and courts to take a resurgence in profits—in Q1, the oil majors also reported profits, after huge losses in 2020—and use them to invest in transforming their businesses.

And consumers increasingly have other options, as Nysveen points out. As prices for electric vehicles come down, and oil prices go up, investing in an EV will make more and more economic sense.

Wood Mackenzie, the U.K. energy consultancy, also forecast that that transition will put oil prices into a “terminal decline” this decade, in an April 2021 report. The report forecast that demand will begin to decline in 2023, and then drop by 2 million barrels a day per year.

Then again, the world of oil-price forecasting is famously fickle—as is success in beating back the pandemic.

Forecasts of $100 barrel oil rest on assumptions of strained supply and a global economic coming-out party. But the real world isn’t so sure. In the U.K.—home to the landmark Brent crude contract—vaccination rates are among the highest in the world. COVID-19 cases, too, are rising once again.