A general view shows Marathon Petroleum’s oil refinery, following Russia’s invasion of Ukraine, in Anacortes, Washington, March 9, 2022.
David Ryder | Reuters
Oil prices are racing high again and are expected to see more spikes and drops as the world deals with potential supply shortages.
For consumers, that means gas is more expensive over time – with prices at the pump staying above $4 per gallon. For the economy, that means more inflation. Besides the strain on consumers, there will be higher costs across the board for any petroleum-based business – from airlines and trucks to chemical companies and manufacturers. plastic.
Russia’s invasion of Ukraine comes at a time when oil prices are soaring due to tight supplies and growing demand from reopening economies. Now, Russia’s massive loss of 5 million bpd of exports has put further pressure on prices.
“I’m still constructive on oil because I don’t see any immediate path to the war in Ukraine. Market participants have consistently given Putin the benefit of the doubt about the oil market,” he said. His stated willingness to negotiate, but we think we should pay attention to his actions Helima Croft, head of global commodity strategy at RBC, said.
Oil rose more than 7% on Monday, when European Union considers joining US oil embargo and after Saudi Aramco facilities were attacked by Iran-aligned Houthi rebels in Yemen over the weekend.
Analysts also acknowledge that prices could suddenly collapse, especially if there is some resolution to Russia’s attack on Ukraine.
“The range of results in any given two-week period is very wide. We went from $90 to $130 per barrel in a month. We went from $125 to $95. in a week and that would be normal volatility $10 Daniel Pickering, Chief Investment Officer of Pickering Energy Partners, said a week was remarkable, 10% nothing changed.
Pickering said the market was back to trading with fear on Monday.
“You don’t want to take a higher price point off the table of probability, but I think what we’ve seen is fear of something and right now it’s fear of actions around Russian barrels and that’s going to create a lot of volatility,” he said. “If that turns out to be the case, I think you’re biased higher than these levels. You put back $130 if we actually start canceling the Russian barrels.”
Pickering estimated that 2 to 3 million barrels of Russian oil per day were frozen on the market with no immediate buyers. He said China and India are continuing to buy crude oil from Russia. “I’m sure there will be others willing to take more over time,” he said.
Pickering said he doesn’t expect oil prices to return to $130 a barrel, but added that this could happen. West Texas Intermediate Crude Oil April oil futures rose 7% at $112.12 a barrel on Monday.
Francisco Blanch, Bank of America’s head of commodities and derivatives, said the US market is setting up for periodic rallies.
He said in a note that limited production growth and strong demand for refining and exports are making inventories at the U.S. Cushing storage facility in Oklahoma tight. It is a central oil base for crude oil traded in US futures contracts. The lack of storage there can make the futures market more volatile, as futures contract holders have to physically deliver when the contract expires.
In April 2020, that convergence resulted in negative WTI oil prices as investors were forced to liquidate their positions at negative prices during periods of very low demand. Blanch notes that the opposite can cause prices to spike during expiration, when investors attempt to buy.
The April contract expires on Tuesday. “Given the near-term scarcity of barrels in the market, we see an increased risk of a short squeeze as WTI approaches the end of its monthly shelf life,” Blanch said.
European ban?
The European Union is expected to discuss a ban on Russian crude oil, butHere is the disagreement between the members. This week, EU governments and President Joe Biden held talks in a series of summits aimed at strengthening responses to the Russian invasion.
“I think the prospect of sanctions or embargoes on Russian oil in Europe is really increasing and the pressure will increase during the week,” said Dan Yergin, Vice President of IHS Markit. Yergin, Vice President of IHS Markit, said.
“But it needs to be done carefully and in close consultation with the industry to minimize this disruption,” Yergin said.
Croft said she is skeptical Europe will come with a ban. Europe is Russia’s largest export market for both oil and natural gas.
“I still think Germany will block any attempt by the EU to impose energy sanctions, so the economic lifeline provided to Putin by the sale of oil and gas will remain,” Croft said. .
Russia’s financial system has been sanctioned by the US and its allies, and the US has banned Russian oil production. Croft said more sanctions are likely.
“The brutality of his military campaign will likely mean that sanctions here will be in place for the foreseeable future and Russia will remain a toxic asset,” she said. “I think we should pay more attention to Parliament because it could move towards imposing secondary sanctions that would essentially force Germany to have a hand in this.”
Supply shortage
Saudi Arabia’s oil facilities attacked over the weekend of the Iran-aligned Houthis. Missile and drone attacks were fired at a desalination plant in the country. liquefied natural gas plants; a power plant and a gas facility. Aramco said there was no impact on supply.
“The Saudis are using this attack by the Houthis as a cover to say they are disclaiming the oil market because of the attack,” said John Kilduff, partner with Again Capital. He noted that Saudi Arabia’s relationship with the US had become strained under the Biden administration.
“Saudi Arabia’s refusal to replenish supply is exacerbating the price problem for consumers around them. They are exacerbating the price problem for consumers across the world,” Kilduff said. all over the world”.
Saudi Arabia is the leading member of OPEC+, which includes other OPEC producers and Russia. The group has agreed to return 400,000 barrels a day to the market every month until June. At its most recent meeting, OPEC+ gave no signal whether it would consider any more barrels.
Saudi Arabia has been silent about the invasion and has not promised to add any more oil to the market beyond their previous plans. British Prime Minister Boris Johnson visited the kingdom last week, and US Secretary of State Anthony Blinken is also expected to visit.
“Saudi Arabia remains firmly committed to the OPEC+ easing formula. Boris Johnson returns to London empty-handed and now with the Houthis’ strong attacks on energy infrastructure, the kingdom are warning that they may not be able to maintain current production levels,” Croft said.
Yergin said it would be difficult for Saudi Arabia to leave the OPEC+ partnership. “The OPEC+ partnership is really an agreement between Saudi Arabia/Russia and before all this begins, it is a source of stability for the market,” Yergin said. “Since the price crash in 2014, their goal has always been to get Russia into a deal rather than leaving Russia out as a competitor. Their relationship deepened and they became strategic partner.”
Yergin said the relationship has been bonded together at the highest level – between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.
“If OPEC doesn’t bounce back more barrels, the market will tighten,” Pickering said. “I don’t think they feel strongly drawn to the near-term. I think there’s a lot of games going on… I think there’s a momentum that says output from OPEC will keep going higher. , but not necessarily at the speed Europe and the United States want.”
Other Supplies
The US has sought other supplies, including barrels possibly from Venezuela, which is under sanctions.
Markets had been expecting a deal with Iran that would allow it to return more than 1 million barrels per day in exchange for an agreement that it would end its nuclear program. But those talks have bogged down in recent weeks.
US producers could also bring in more oil, but their contribution is not expected to be much larger than the 900,000 to 1 million additional barrels per day expected this year.
Several oil executives met at the White House on Monday.
“I don’t think the industry feels compelled to take action. There’s volatility in prices. There’s a very likely profit tax discussion,” said Pickering. “We need to see if the government provides any carrots. They certainly provided the stick, but I don’t think the stick will work.”
