International crude oil prices have fluctuated violently recently, and the situation between Russia and Ukraine remains the main influence. In just 10 days, Brent crude oil futures continued to rise from around US$100, rising to the year’s high of US$127.98 per barrel on March 8, which was also a new high since July 2008. Then there was a sharp drop on March 9, with a drop of more than 13%, the largest single-day drop since March 18, 2020.
Figure 1 Overview of international crude oil price trends
Source: Longzhong Information
Looking back over the past 10 days or so, we can see that the core benefit of the continued rise in oil prices mainly comes from concerns about supply risks caused by the situation between Russia and Ukraine. The plunge on March 9 was due to Ukraine saying that its neutrality status was negotiable, and the situation showed an opportunity to ease for the first time. , industry supply concerns have weakened.
Figure 2 Global crude oil supply structure in 2021
Source: EIA
It can be seen from the global crude oil supply structure that Russia’s crude oil production in 2021 is about 10.52 million barrels per day, accounting for 12% of the world. It is the second largest oil producer in the world after the United States, and its status is very important. Although the military conflict has not affected Russia itself, the increasing sanctions imposed by Western countries have made the market worried that exports will be restricted, which may also inhibit output. At present, the United States, Russia and Saudi Arabia are still the “troika” in global crude oil production that is almost neck-and-neck. The output of any one of them is almost equivalent to the combined output of all countries outside the world’s top 20.
Figure 3 Russian crude oil export structure
Source: EIA
In terms of exports, Russian crude oil exports will be approximately 4.27 million barrels per day in 2021, accounting for approximately 40.5% of its total production. Judging from the structure of Russia’s crude oil exports, Europe and Asia are the two major consumption areas, with 57% of Russian crude oil flowing to Europe and 42% to Asia.
On March 8, U.S. President Biden announced that the United States would ban the import of Russian crude oil, and the United Kingdom stated that it would gradually stop imports of Russian crude oil by the end of this year. This once heightened tensions and caused oil prices to surge sharply. However, careful analysis shows that the main consumers of Russian crude oil in Europe are Germany (11%), the Netherlands (11%) and Poland (7%), while the United Kingdom accounts for a very low proportion. Only 1% of Russian crude oil exports go to the United States, and it only accounts for 3% of the United States’ own crude oil imports. The impact is relatively limited. Based on the above, it can be seen that most European countries such as Germany have not joined the ban on Russian crude oil. It makes sense.
Looking forward to the market outlook, although there are opportunities for easing the situation between Russia and Ukraine, differences still exist. A complete reconciliation is difficult to achieve quickly, and the favorable support brought by geopolitical factors may continue for some time. Although after entering mid-March, the two potential negative effects of the Iran issue and the Fed’s interest rate hike may come to fruition at any time, as long as the situation between Russia and Ukraine is not completely resolved, it will be difficult for international crude oil prices to quickly fall back to the pre-incident level, and the high characteristics may continue. .
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