3 reasons why oil prices will continue to be high in the near future
The price of Brent crude oil jumped to $124 early last week, its highest level since early March. The rally came after the EU announced it would cut Russia’s oil imports by 90% by the end of this year by 90%. .
After that, oil prices fell slightly to around $117, largely due to investor expectations that OPEC would increase production but still not enough to ease consumer stress or cool down inflation globally. bridge. The EU ban and the recovery of demand in the world’s second largest economy will keep oil prices high.
“Triple-digit oil prices” are likely to continue to rise, said Matt Smtih, senior Americas oil analyst at Kpler. “If Chinese demand rebounds strongly after the blockade and Russia continues to see production decline, then the possibility of oil prices rising to as high as $139 as at the beginning of the year will happen,” he said.
Europe plans to stop importing Russian oil
Even if soaring inflation and sluggish growth are causing the specter of a recession to return, global oil demand is unlikely to fall enough to cool prices down like it did in 2008.
“The biggest concern right now is the supply side,” Smith said. “Even in the event of a recession, the overall price level hasn’t cooled down yet.”
The EU on Friday formally approved an oil embargo, part of a sixth package of sanctions imposed on Moscow. Most of the countries of this bloc will phase out Russian oil gradually in 6 months and 8 months with all other oil products.
For now, the EU is likely to continue buying some Russian oil, Smith said, but has been looking for alternative supplies.
According to Kpler data, EU imports of crude oil from Angola have tripled since the conflict began, while volumes from Brazil and Iraq have increased by 50% and 40%, respectively.
Roslan Khasawneh, senior fuels analyst at energy data firm Vortexa, said that finding supplies from further afield would keep oil prices high. “The direct impact of this is higher freight rates due to longer trips and higher oil prices,” he said.
Governments can come up with a number of measures to cool oil prices, including providing fuel price subsidies and limiting market prices. However, the “silver bullet” that the world really needs, which is a sharp increase in supply, is unlikely.
Alternatives still not enough
According to the IEA, last year Russia contributed 14% of the global oil supply, and Western sanctions on the country are creating a sizable gap in the market. Russia stopped supplying about 1 million bpd in April and this figure could reach about 3 million bpd in the second half of this year.
OPEC and its allies have agreed to supply 648,000 barrels of oil per day more to the market in July and August, 200,000 barrels more than planned. The IEA forecasts that global oil production – excluding Russia – will increase by more than 3 million barrels per day between now and the end of the year, helping to partially make up the shortfall caused by sanctions.
However, Smith believes that this goal is difficult to achieve. Even before the Ukraine conflict, he said, oil producers had reduced their investment in production as they turned to renewable energy. In addition, OPEC also sets limits.
“OPEC+ is struggling to meet the current deal. Even core OPEC members like Saudi Arabia, the UAE and Kuwait are exporting quite a bit less than in April,” Smith said.
Giovanni Staunovo, strategist at investment bank UBS, said the capacity of many member countries has reached its limit. “This means the increase in output could be about half of the target,” he said.
The world’s demand has increased sharply
For months, blockades in Shanghai, Beijing and other cities in China have dampened demand in the world’s biggest oil importer. However, as the government begins to ease restrictions, pent-up demand could push prices up further
China is likely to increase supply from Russia, where Ural crude is trading $34 per barrel below Brent. Vortexa estimates that China imported 1.1 million barrels of Russian oil per day in May, up about 37% from last year’s average.
Mr. Smith predicts demand in China may not “boom again” because of the way they lifted the blockade order in part. However, “the magnitude of the downside effect has disappeared, so future oil prices could fluctuate at current levels.”
Meanwhile, fuel demand in the US is still quite stable and prices are not low. The average price of gasoline in the United States has increased by more than 50% over the same period last year, reaching $4.60 per gallon at the end of May.
Refer to CNN
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