As the Russia-Ukraine conflict continues, the full extent of its impact on the former’s oil exports will become evident in April and May as the figures of these months will reflect deals made after the Russian invasion.

The peak of the Russian supply disruptions might, therefore, be ahead of us and consequently, another surge in the prices of crude oil is likely in the next two weeks.

However, Brent prices fell as bearish sentiment prevailed in the market after Ukraine and Russia described their ongoing peace negotiations as constructive.

Adding to the bearish sentiment was India’s U-turn on its stance toward purchasing Russian oil, among other customers.
Before the invasion, Russian oil exports were about 7.5 million barrels per day, roughly 4–5 million barrels per day of crude oil and 2–3 million barrels per day of petroleum products.

Russia’s flagship Urals oil grade is also trading at the biggest discount to global benchmark Brent, which indicates difficulty in selling Russian crude since the invasion.
A sustained loss of exports will also lower Russian crude oil production. Russia has relatively little storage capacity, much of which is already used. The oil market is under renewed selling pressure due to several factors such as the International Energy Agency cutting its forecast for oil demand in 2022 by 1 million barrels per day, Iran nuclear deal, rising US crude stocks, and a 0.25 percent interest rate hike by the Federal Reserve with six more hikes likely this year.

At the same time, China imposed new restrictions due to virus outbreaks, thus contributing to volatility and a sharp price drop. The surge in COVID-19 cases in mainland China is another worry as it could further lower oil demand — and prices — even hit supply chains. China’s gasoline demand is set to weaken as virus outbreaks prompt more lockdowns and costs weigh on consumption, with consumption remaining flat from January levels.

The market may be at the beginning of a global commodity shock — prices for oil, gas, wheat, nickel, iron ore and aluminum are high and could go higher. This will have a negative impact on the global economy, supply chains, and oil demand.
Most of Russia’s pre-invasion oil sales were to NATO members. That will likely change in the wake of the US ban on Russian oil imports. In Europe, the transition away from Russia will take longer. New buyers will emerge and existing buyers in Asia will try to buy more Russian oil, especially if deep discounts endure. The oil market will adjust, but it will be a partitioned market.
The European Commission has outlined plans to use all means at its disposal to wean the EU off Russian gas. However, European gas prices will remain high. The market is tight. Extra purchases of liquefied natural gas would be expensive as European importers would have to pay top dollar to wrest whatever cargoes they could away from Asian rivals.
Source: Arab News