Renewed fears of a global supply shortage are pushing oil prices higher again in the latest sharp move in three weeks of extreme market volatility since Vladimir Putin ordered Russian tanks into Ukraine.
International benchmark Brent oil settled at $107.93 a barrel on Friday, up more than 9% over the previous two sessions. The price was well below the $139 peak reached on March 7, but still about $10 a barrel more than before the Russian invasion.
Calculating the impact of punitive sanctions on the offer of Russia, the world’s largest exporter of oil and petroleum products, is complicated by hopes for peace talks between Moscow and Kiev and the possibility of easing restrictions on oil exporters Venezuela and Iran. A lockdown to contain a new surge of Covid-19 in China, the world’s largest oil importer, will lead to some reduction in consumption.
“Oil price volatility goes hand in hand with wars involving big oil producers,” said Bill Farren-Pryce, director of energy consultancy Enverus.
“Supply risk is one thing, demand doubt is another. Europe’s approach to Russian energy sanctions and talks on the Iranian nuclear program, which could trigger a flow of Iranian oil, will be the next important landmarks. It’s a giant swing in oil prices.”
Oil prices jumped after the International Energy Agency said on Thursday that Russia’s oil production could fall by 3 million barrels a day, or 3% of global output, from April. An agency that monitors Western countries has warned that the world could be on the cusp of a “biggest [oil] supply crisis in decades.
But price gains will be limited until traders can quantify the extent of Russian supply losses, other analysts said.
Oil production in Russia rose in March, according to Florian Thaler, chief executive of OilX, which tracks global oil flows. Sales of petroleum products began to fall, he said, but crude oil exports remained robust.
EU countries and other countries, including China, continue to buy Russian oil despite the US ban. Thaler said India, which normally imports about 150,000 bpd of Russian oil, could increase that figure to more than 500,000 bpd in April.
Russian export oil has now been sold at prices well below Brent to attract buyers, Morgan Stanley analysts said, “and history shows that when sufficiently discounted, oil tends to find a market.”
Any loss of Russian production will put pressure on a fragile market, where global oil supplies can no longer keep up with rising post-pandemic demand, analysts say.
On Thursday, Morgan Stanley raised its Brent oil price forecast for the third quarter by $20 a barrel to $120 a barrel. Goldman Sachs raised its forecast to $135 a barrel for the year, but said Brent could rise to $175.
The IEA said this week that commercial oil stocks in rich countries were rapidly declining as supply failed to match demand. Western countries have also released oil from emergency reserves to drive down oil prices, which are more than double their long-term average.
recommended
Some analysts say the surge in prices caused by the emerging supply shock could destroy oil demand, eventually pushing prices down.
According to the IEA, the Ukrainian crisis alone could “significantly suppress global economic growth.” He cut his forecast by about a third on how much more crude oil the world will use in 2022.
OilX’s Thaler pointed to China, where he says imports and demand from refineries are now much lower than they were in 2021.
Conversely, consumption in the US, the world’s largest oil market, has remained close to all-time highs above 20 million barrels per day in recent weeks, despite record domestic gasoline prices.
Twice a week newsletter
Energy is an indispensable business in the world and Energy Source is its newsletter. Every Tuesday and Thursday, Energy Source brings you breaking news, forward-thinking analysis and insider information straight to your inbox. Sign here.