Oil first fell in price on Thursday, and then rose again. The news that Saudi Arabia is ready to increase the production of oil in response to the reduction in its production in Russia, in the morning hours of the European trading session, had a negative impact on quotes.
August futures for Brent oil on the London ICE Futures exchange at the time of writing the review began to rise again on the charts, demonstrating a level of $117.03 per barrel. July futures for WTI oil in electronic trading on the New York Mercantile Exchange also rose by this time (to $115.73 per barrel).
The OPEC+ Technical Committee at a meeting on Wednesday announced a decrease in the projected oil surplus in the world market this year. From now on, it is expected not 1.9 million barrels per day, but 1.4 million. The forecast was lowered taking into account the progressing inflation, the military conflict in Ukraine and the coronavirus pandemic in China. An important reason was the release of strategic oil reserves by consumer countries.
EU leaders on Monday agreed to impose a ban on 90% of Russian oil by the end of 2022. This is the sixth package of sanctions against Russia. Recall that Russia is the third largest oil producer in the world after the United States and Saudi Arabia, as well as the second largest exporter of crude oil after Saudi Arabia. It is clear that Russia will look for ways to sell its oil, which fell under sanctions, which will definitely affect world prices, because about 36% of EU oil imports come from Russian fields.
The Kremlin already has two potential oil buyers, China and India. They have already purchased Russian oil at a significant discount, and it looks like they will continue to do so on the same terms.
Inflated oil quotes are felt all over the world. To date, in nominal prices, the cost of gasoline is at a record high. For example, the price of crude oil rose to $120 per barrel on Monday. This is an exorbitant cost, which in history has always led to a rapid drop in demand and a sharp economic downturn, if not a recession.
The International Energy Agency, in its latest monthly report, announced an expected increase in demand, which promises to rise by about 3.6 million barrels per day. We are talking about the spring-summer period from April to August.
Thus, Shanghai, a major oil consumer and the most important economic center of China, seems to have successfully overcome the outbreak of the coronavirus and is finally returning to its usual turbulent social and business life. In other regions, such as North America and Europe, airlines plan to multiply their flight schedules this summer, predicting an increased interest in long-distance travel after two years of total restrictions.
At the same time, no special relief is foreseen on the supply side. The group of the largest Western economies G7 still expects to punish Russia to the maximum for conducting a military operation on the territory of Ukraine and significantly limit the amount of oil it produces so that it sells it as little as possible on the world market. On the one hand, the embargo on the import of Russian oil and fuel has already been announced, but on the other hand, it has obvious errors. Judge for yourself: the ban seems to have been introduced, but pipeline imports of Russian raw materials will still continue to flow to Hungary, Slovakia and the Czech Republic. True, the volume of raw materials imported into these countries will be significantly reduced - only 250,000 barrels per day.
The current situation is pushing European consumer countries to fight for African and Middle Eastern oil, which is in good demand in Asia or North America. Large volumes of Russian supplies due to problems with exports may completely leave the market, despite the fact that alternative buyers have been found in China and India.
Oil production in Russia today remains well below the level it was before the start of the special operation on February 24, and below what it undertook to produce under an agreement with the Organization of the Petroleum Exporting Countries. Export terminals and oil storage tanks are unable to unload waiting tankers. Under these conditions, Russia will be forced to close more and more productive fields.
According to the Oxford Institute for Energy Studies, this risks leading to a noticeable decrease in production by the end of this year - by 4 million barrels of oil per day (compared to the level before the start of the special operation). Despite the likely difficulties in the global market, Amin Nasser, CEO of Saudi Arabia's national oil company Saudi Aramco, did not raise false hopes. Last week, he said that increasing production in his country is not yet possible, as there are only 2 million barrels a day of spare capacity that can be used in an emergency.
If Russia still manages to find other buyers for its raw materials, Western sanctions still promise huge losses - significant costs in the global energy market. It's pretty simple to imagine: more than 10% of world production will need much longer and more expensive shipping routes, while oil prices are already too high. The sanctions policy of the Western European region will inevitably lead to disaster.
Oil inventories in advanced economies today are at their lowest seasonal level in 8 years. If there is no next reduction in the demand for oil and fuel in China, then a short-term imbalance in supply and demand in the short term is almost inevitable. Fuel prices are already at levels where British and French drivers have recently started strikes and blockades of oil refineries or taken more drastic measures. And while civil disobedience is unlikely so far, it is clear that severely high fuel prices could undermine the credibility of any ruling party, in particular the one facing elections (for example, the US Democratic Party in November).
