Which ‘exit’ for crude oil
The European Commission (EC) on May 3 proposed to publish a plan that is considered to be able to create historic watershed changes to the global energy flow. However, oil prices in the market did not react too strongly to this information. North Sea Brent oil rose more than 3.8%, to the threshold of 110 USD/barrel after it emerged that the EC proposed that the European Union (EU) impose sanctions on crude oil and refined products exported from Russia under each phase.
Analysts and traders believe that the market’s moderate reaction stemmed from the fact that crude oil has maintained a strong upward momentum due to the previous information, the EC’s phased approach and the declining trend of consumer demand. consumption in China due to the COVID-19 outbreak as well as the move by the US and many allies to export oil from strategic reserves. Since the beginning of April until now, the price of Brent oil has fluctuated in the range of 100-115 USD/barrel.
Bjarne Schieldrop, head of commodity analysis at SEB Bank (Sweden), such an increase in the price of crude oil is considered small compared to a decision that is considered a shock from the EU. “If it weren’t for the effects of the blockades in China as well as the release of oil from the storage, the oil market would have had a much stronger price reaction,” he said.
Since Russia’s military invasion of Ukraine in February, traders have been trying to predict how long-term disruptions in the flow of crude oil exports from Russia will also affect the global oil market. capital demand fell into tight situation.
Immediately after the conflict, crude oil recorded an explosive increase, when Brent oil reached $139 a barrel – a record high in 14 years. That is how the market reacts to the news that the US is about to apply crude oil against Russia. Oil prices then fell, when Europe, led by Germany, opposed the idea of restricting imports from Russia, despite the fact that some importers in Europe voluntarily stopped buying Russian oil.
Oil prices are constantly stuck in the range of 100-115 USD/barrel.
Concerns about weakening demand for crude oil related to the blockade order in China has been the biggest factor affecting oil prices since early April, said Amrita Sen, chief crude oil analyst at Vietnam Securities Co. Energy consulting firm Energy Aspects, acknowledged.
According to him, before information like the EC proposed sanctions against Russia, oil prices could increase by 10-15%. But for now, the problem is that the market is really concerned about crude oil demand from China, the world’s largest oil importer.
Banking-finance group Standard Chartered estimates China’s crude oil consumption fell by about 1.1 million bpd in April, equivalent to 1% of global consumer demand. This decline stems from recent restrictions and blockades in the mainland. However, consumption is expected to rebound in July.
Other traders fear China’s crude oil demand could even fall by as much as 3-4 million bpd, equivalent to the loss of Russian production due to the impact of potential sanctions.
“Many people have told me that China reduces the effectiveness of sanctions against Russia. That’s not the view of Energy Aspects, but that’s exactly what the market is seeing,” Mr. Amrita Sen said.
According to Mr. Sen, when considering global oil demand, China must first be considered. The blockade order in China does not last long, consumption demand may recover in May and increase from July compared to the same period last year. That will be the time when oil gains momentum in the market.
Without the EU’s embargo decision as proposed by the EC, the most recent round of EU sanctions is expected to take effect from May 15. Accordingly, companies in Europe will not be allowed to import crude oil and refined products from state-owned corporations in Russia, such as Rosneft, except in a few “specially necessary” cases. .
As a result, Vitol, the world’s largest independent crude oil trader, estimates that Russia’s crude oil exports will fall sharply in the second quarter. “Supply declines from Russia have happened and are already reflected in the second quarter. The EC’s statement helps the market to have a clear direction on the fact that oil prices will not explode in the near future, “said Paul Horsnell, head of commodity research at Standard Chartered.
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