As international tensions intensify, crude oil prices continue to rise after “breaking 100”, and news of OPEC+ increasing production and the International Energy Agency (IEA) releasing oil reserves were “ignored” by the market.
Although the International Energy Agency announced on March 1 the release of 60 million barrels of oil reserves, it is still a drop in the bucket. On March 2, Brent crude oil and WTI crude oil futures both exceeded US$110/barrel, setting new highs since 2014.
OPEC+’s step-by-step production increase plan has also failed to cool down high oil prices. On March 2, OPEC+ agreed to increase crude oil production in April by 400,000 barrels per day as expected, but the cautious pace of production increase and less and less idle production capacity are not expected to solve the current supply and demand dilemma.
Supply haze lingers
The current surge in oil prices is undoubtedly closely related to tensions in Ukraine. Russia is the world’s second-largest crude oil exporter after Saudi Arabia, exporting 4 million to 5 million barrels of crude oil and 2 to 3 million barrels of refined products per day.
Although the United States and Europe have excluded energy trade from the scope of sanctions against Russia in the hope of preventing further increases in energy prices, Russian oil and gas exports have already been affected. While the series of sanctions imposed by Western countries do not specifically target Russian oil and gas exports, some buyers of Russian oil say they are unable to open letters of credit from Western banks to pay for their purchases and find it difficult to find ships to transport Russian oil. .
Judging from market performance, the discount of Russian Urals oil to Brent crude oil has exceeded 18 US dollars, setting a record since 1991. But even at this price level, traders are having trouble finding willing buyers for Russian oil.
Wang Chengqiang, director of the New Era Futures Research Institute, said in an interview with reporters that as tensions in Ukraine intensify and Western sanctions escalate, traders are extremely cautious about Russian crude oil transactions, and the risk of future sanctions and increased payment costs are lingering. This directly led to the abnormal discount of Russian crude oil. It is expected that things will change when Russian crude oil shows its cost-effectiveness in the future, a lot of bad news settles, all the bad news is gone, and market tension subsides.
Facts Global Energy crude oil analyst Alex Kavouris also said that European buyers will also try to avoid buying oil from Russia as tensions continue to rise.
The market needs to be alert to the possibility of further deterioration of the situation in the future. On March 1, U.S. White House Press Secretary Psaki stated at a press conference that the U.S. government would not restrict the purchase and sale of Russian crude oil and natural gas by U.S. companies, but also stated that it would not rule out the possibility of “blocking” in the future. .
In response to severe supply disruptions, the International Energy Agency said on March 1 that it would coordinate the release of 60 million barrels of oil reserves by major consumer countries, half of which comes from the United States. This is the first time the International Energy Agency has released oil reserves simultaneously since the Libyan civil war in 2011, and the fourth time the International Energy Agency has coordinated the release of oil reserves since its establishment in 1974.
But the market didn’t buy it. Oil prices continued to rise after the International Energy Agency announced the release of oil reserves. The scale of 60 million barrels of oil is only equivalent to less than one day’s global consumption. The market believes that this release of oil reserves further highlights the global supply. A tense dilemma.
Bob Yawger, director of the U.S. futures department at Mizuho Securities, pointed out that 60 million barrels of crude oil, equivalent to about 6 days of Russian oil production and about 12 days of exports, may be just a drop in the bucket and not enough to offset the impact of Russian supply disruptions.
Wang Chengqiang also told reporters that theoretically, the release of crude oil reserves has a negative impact on oil prices, but among the many factors affecting oil prices, it is obvious that the market is more sensitive to the risk of crude oil supply shortages brought about by international tensions.
When did oil prices rise sharply?
Before the situation in Ukraine escalated, the oil market had already tightened significantly as the world economy rebounded strongly from the epidemic. The output of major oil-producing countries was unable to keep up with demand growth, and oil prices continued to soar accordingly.
Lin Boqiang, dean of the China Energy Policy Research Institute at Xiamen University, told reporters that the previous surge in oil prices was due to the mismatch between supply and demand after the outbreak. Demand increased rapidly but supply failed to keep up. The current rally is driven by tensions in Ukraine. Russia is an important oil producer. The tension has led to a short-term rise in oil prices. The current sanctions in the field of settlement systems are even more worrying for the market. Although the United States has repeatedly emphasized that it will not impose sanctions on the Russian energy sector, in reality the settlement system has a greater impact on overall energy transactions and energy-related investments.
Overall, many factors such as concerns about supply disruptions in Russia, the International Energy Agency’s release of strategic petroleum reserves, the limited space for OPEC+ and the United States to increase production, and the unsatisfactory progress of the Iranian nuclear negotiations have boosted oil prices. Oil prices may still rise further in the future. space.
It should be noted that even the Iranian nuclear negotiations that the market had expected earlier were full of uncertainties. The current Iranian nuclear negotiations are not going well, and the United States and Iran still have differences on key issues. U.S. State Department spokesman Ned Price said on February 28 that the United States may withdraw from negotiations if Iran shows an uncompromising attitude.
Faced with the current surge in energy prices, Fatih Birol, Director of the International Energy AgencyThe report said: “The energy market situation is very serious and requires our full attention. Global energy security is being threatened, which also puts the world economy, which is still in the fragile recovery stage, at risk.”
Although international oil prices have exceeded $110, Goldman Sachs strategist Dominic Wilson still warned that the market may have underestimated the risk of tight supply. The situation in Ukraine is still a major risk and the “risk premium” of crude oil may be higher in the future. Goldman Sachs has raised its short-term forecast for crude oil prices, raising its price forecast for Brent crude oil in the next one month to US$115 per barrel from the previous US$95 per barrel. The situation may further escalate or supply disruptions may be extended in the future, which poses significant upward risks to oil prices. .
Jarand Rystad, CEO of energy consulting agency Rystad Energy, also said that the long-term supply disruption caused by the situation in Ukraine may be much more serious. In the future, crude oil prices may soar to US$130 per barrel, and consumers will have to face higher gasoline prices and electricity bills. .
Regarding the soaring oil prices, Wang Chengqiang analyzed to reporters that the rise in international oil prices accelerated after breaking through the $100 mark, with an increase of nearly 20% this week and more than 40% this year. This amazing increase is also rare in history. From a technical perspective, US$110-115 per barrel has been the high price resistance zone for international crude oil over the past decade. If it is effectively broken through, it will have the technical conditions to set a new historical high (US$145-150). From a fundamental perspective, whether oil prices can hit new highs will depend on key issues such as the development direction of the geopolitical crisis, changes and implementation of Western sanctions policies against Russia, and the outcome of the Iran nuclear agreement negotiations.
In terms of economic impact, Invesco Asia Pacific (excluding Japan) global market strategist Zhao Yaoting told reporters that high oil prices will affect the economy, but most Asian countries are expected to be able to withstand the impact. While producer price inflation has received some attention in markets such as China, consumer inflation remains within normal limits. Judging from historical data, crude oil prices have minimal impact on economic growth, currencies and risk assets in Asia. In contrast, the impact on developed countries in Europe and the United States may be more obvious. Potential energy supply shocks may lead to the risk of stagflation in developed markets and weaken consumer demand for Asian goods.
Wang Chengqiang told reporters that European and American oil and gas giants are gradually cutting off ties with Russia, which may set back capital expenditures in the Russian oil and gas industry, and the energy market supply may become even tighter in the future.
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