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UNRAVELING WEEK FOR THE OIL MARKET

Crude oil

Harvest Global Markets :

Russia has been weaponizing its energy supplies to Europe for months and is now attempting to cripple Ukraine’s energy grid. Consumer nations are scrambling to obtain limited energy supplies and thus have become competitors. The possible diagnosis of the global oil market will conclude within the next week when Europe begins to prohibit Russian seaborne crude from entering the continent – one of the sharpest responses to Vladimir Putin’s ruthless invasion of Ukraine on February 24th.  Moreover, the proposed regulations will also prohibit European corporations from covering vessels transporting Russian oil to third-party countries unless those nations adopt a price for the oil determined by western powers. Ultimately the price setter, Russia, may become a price taker. The real price limit is still up for discussion. According to those acquainted with the conversations, some European countries want a punishing price approaching $20 per barrel, while others prefer a range of $60 to $65 per barrel.

 

On the other hand, Russia will have the opportunity to negotiate Moscow’s reaction with Saudi energy minister Prince Abdulaziz bin Salman on Sunday during the OPEC+ meeting, a day before the European embargo and price limit will go into effect. Thus, the next day’s represent grave danger for the oil market and a global economy that relies largely on the commodity. The established geopolitical norms have eroded over the past year, and that supply chains that have existed for decades are currently being disrupted.

China’s adherence to a “zero-Covid” policy has also reduced demand and acted as a control mechanism for market pressures. Furthermore, the U.S has spent months attempting to restrain prices by releasing enormous quantities of oil from its emergency stockpile and exerting continual — if futile — pressure on Saudi Arabia and other oil exporters to keep expanding supplies.

Some analysts contend that the price ceiling itself may result in price hikes. T the current tensions in Russia’s oil trade will have a “major impact” on oil prices next year. About 2.4 million barrels per day of Russian oil will have to find a new market outside the EU and G7. India, China, and other customers are anticipated to absorb a portion of this shortfall. However, they have suggested that they would not join the price limit program, fearful of endangering their relations with Moscow or appearing to cave to the west.

Whatever the future holds, it depends upon price caps, price cap consequences, Russia’s retaliation, OPEC’s response, and Saudia Arabia’s policy.

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