Oil prices currently know only one direction, and that is up. The invasion of Russian troops in Ukraine has given even more impetus to the price of oil, which has been getting stronger again over the past year anyway. Especially since the situation in Ukraine seems to be far from over. The fighting is now entering its second week and Russia does not seem to be able to be stopped even by sanctions imposed by the West. Several countries in Europe and the U.S. have already excluded some Russian banks from the SWIFT system, and many companies have abandoned their Russian operations. This has lifted oil prices close to the $120 mark.
BRENT crude oil rose 12.45% last week to $118.04 per barrel. This is the highest level since 2014.
WTI rose 11.21% this week to $115.06 per barrel. This is also the highest level since 2014.
Some analysts expect that we will soon see oil prices in the region of $150 per barrel again. The main reason for this, in addition to the countries, imposed sanctions, are the traders and refiners who are currently giving Russian oil a wide berth. Russia exports about 5 million barrels per day of crude oil and 2.8 million barrels of refined products.
If traders and refiners avoid Russian oil, they will have to buy the missing oil elsewhere, which in turn may lead to shortages elsewhere.
What relief is available in the short term?
There is unlikely to be a real solution in the short term, even though the IEA has agreed with its member states to release strategic oil reserves. Currently, there is data from the U.S., which will release 30 million barrels, and Japan, which will release 7.5 million barrels. To what extent this can depress oil prices remains to be seen.
A nuclear agreement with Iran is probably imminent, but not yet finalized. This means that Iranian oil is not yet on the world market. But experts say that even if an agreement can be found with Iran that can not cover the Russian shares.
Another option would be for the U.S. to ramp up its oil production again. Elon Musk, the founder of Tesla, also called for this during the week.
He tweeted on Friday, “Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures,” adding, “Obviously, this would negatively affect Tesla, but sustainable energy solutions simply cannot react instantaneously to make up for Russian oil & gas exports.”
It has not yet become clear whether the Biden administration will respond to the request. The White House press secretary has only indicated that the administration is currently weighing its options.
A final option would be for traders and refiners to buy Russian oil again. However, this is probably the most unrealistic option, as no one wants to be seen as a Russian war financier.
In addition to rising oil prices, major oil producers also gained this week. Several hit new all-time highs this week. On Friday, Chevron (CVX) hit a new all-time high of $158.70. Canadian Natural Resources (CNQ) also hit a new all-time high of $58.94. So did ConocoPhillips (COP) at $100.27.