This month’s Focus – “Oil Shock Continues” – explores the recent developments in global oil prices and the different drivers that have kept demand up despite prices staying above USD 100 per barrel for an extended period of time.
Re-escalations in the Middle-east and recent Ukrainian attacks on Russian refineries pushed oil prices over the USD 115 per barrel mark during the last few weeks. Even before that, oil prices have remained over USD 100 per barrel for a fairly longer time period. Historically, while significant spikes in oil prices resulted in some degree of demand destruction, what we see now is that demand has not weakened to the same extent. The AI boom the world is undergoing right now - which is driving energy consumption higher - is part of the reason here. In that sense, this could also complicate the process of easing market pressures which is also something we focus on.
For instance, data from IEA points to a slower decline in global oil demand in 4Q26, despite a larger rise in global oil supply in September. We explore some drivers behind these complications that have surfaced over the past few months and attempt to assess what they mean for Sri Lanka’s oil import bill. Despite there being a number of moving factors within the broader scope, we lay out what we think the current oil shock will cost us IF it lasts longer and how domestic prices may change accordingly.
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