As the conflict between Russia and Ukraine further escalates, the market is experiencing a huge shock. Oil prices rose sharply yesterday due to concerns that the deterioration of the situation may bring energy supply risks.
“Under this background, oil prices have surged again to a new high. This is a stress response to geo-risk and a reflection of the geo-risk premium. The international situation has not yet affected the supply and demand of the international crude oil market.” Haitong Futures Energy Research and Development The person in charge, Yang An, said.
According to Dong Chao, a senior analyst at Shenyin & Wanguo Futures, although the Russia-Ukraine dispute is the “culprit” of the surge in oil prices, the market is more concerned about the future. “Once European and American countries impose economic sanctions on Russia, it may affect its exports of crude oil, especially natural gas. 30% of Europe’s crude oil and 40% of its natural gas imports rely on Russia, and natural gas exports mainly pass through pipelines passing through Ukraine. If energy supply occurs Problems, other countries cannot effectively make up for it in the short term. Although Russia’s crude oil exports have decreased slightly, it is mainly due to the impact of the severe cold in winter, and the impact of the Russia-Ukraine dispute has not yet been concretely manifested,” he said.
Tensions between Russia and the West have escalated significantly, potentially triggering sanctions and other economic penalties from the United States and its allies.
“Judging from what we know so far, it is inevitable for Western countries to impose sanctions on Russia. The ambassadors of the United States and the United Kingdom to the United Nations have stated that they will impose sanctions or further measures on Russia in response to Putin’s statement; French government officials also stated that they would impose sanctions on Russia.” It seems that Putin’s decision requires sanctions. In this regard, Medvedev told the media that Russia cannot and no longer needs to live in peace with the Ukrainian government. He also pointed out that Russia clearly recognizes the independence of Donetsk and Luhansk There will be consequences, but Russia has ‘strong nerves’. ‘We know what will happen in the future, it will be sanctions, threats and political pressure from all sides. We have experienced all of this and we are no longer afraid’. “Yang An said that obviously the market will next pay attention to the specific sanctions imposed by Western countries on Russia and whether they will continue to resolve the current predicament through diplomatic contacts, which determines whether it will ultimately affect global crude oil supply. If there is a substantial impact on Russian crude oil exports, oil prices will inevitably continue to rise sharply, and it will not be a suspense to exceed 100 US dollars per barrel. The specific upside depends on the degree of impact on supply.
Dong Chao believes that if the conflict between Russia and Ukraine further escalates and the two sides enter a stage of substantive action, the main impacts will be concentrated in three aspects: first, Europe and the United States may impose sanctions on Russia’s main export commodity, energy; second, Ukraine will cut off Russia Natural gas transit exports to Europe; third, the United States may suspend the pace of raising interest rates due to concerns about the economy. The first two aspects will mainly support oil prices from the supply side, and the third aspect will support oil prices from the demand side.
On the contrary, if the geopolitical dispute between Russia and Ukraine eases and the United States and Russia can hold talks, geopolitical tensions may cool down. In this regard, Yang An said that he has not yet seen an opportunity for such talks. Of course, he does not rule out that the crude oil price expectations will change again due to the news of the talks or the substantive arrangements of the talks. Therefore, the current crude oil market is expected to be tense. It rises and falls when expectations ease. Oil price fluctuations have deviated from the logic of normal influence. The development of geopolitical conflicts has become the most important factor affecting prices.
Even as international oil prices soar, OPEC+ may still not make a decision to “open the gate and release oil.” Dong Chao believes that if international oil prices soar due to the Ukraine issue, it will be difficult for OPEC+ to reach a decision to significantly increase production. Because this will greatly harm Russia’s interests. As a major member of OPEC+ and a country that has previously significantly reduced production, Russia’s interests are the first priority. Otherwise, Saudi Arabia’s years of efforts to integrate Russia into the OPEC system will be in vain. In addition, in recent years, except for the Khashoggi incident, Saudi Arabia has followed the United States relatively closely. At other times, it has relatively resisted U.S. pressure to increase production, so it is unlikely to “stab Russia in the back” during this period.
“The Iraqi Oil Minister recently emphasized that there is no need for OPEC to increase oil production faster. If any OPEC country exceeds their oil quota, it would be unfair to Iraq. OPEC+ does not want commercial oil reserves to grow.” Yang An However, in order to alleviate the pressure of out-of-control oil prices, the possibility that the United States and Iran will reach an agreement to return Iranian crude oil to the market will increase.
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