In the IOE&IT Daily Update’s latest look at the world of commodities, we return to look at recent developments in one of the world’s most important energy sources: oil.
The price of crude oil is on track for a third rise in three months, as the Russian invasion of Ukraine and cuts in production drive up the cost of the world’s most used energy source.
The price of Brent crude features, a barometer of the oil market, remained below US$87 a barrel after recording one of the highest closing prices since October last night (18 March).
Russia’s war
The ongoing Russian invasion of Ukraine has roiled oil markets, causing the price of diesel and gasoline futures to rise significantly.
Aside from the ‘normal’ levels of disruption that go with continued issues in the Black Sea, drone attacks by Ukrainian forces on Russian refineries are expected to hit exports.
A source told Ukrainska Pravda that Ukrainian special forces were behind the attacks, which are estimated by the Kyiv Independent to have hit over 12 Russian refineries.
After the attacks, Gunvor Group CEO Torbjörn Törnqvist told Bloomberg that around 600,000 barrels’ worth of oil had not been produced because of the attacks.
“It is significant because obviously this is going to hit the distillate exports straight away,” Törnqvist said during an interview at the S&P Global’s CERAWeek conference in Houston.
Although much of the Russian economy remains under sanctions, its energy exports have been subject to an ‘energy price cap’, which restricts the amount that can be legally paid for oil and other petroleum products.
IEA
According to the latest International Energy Agency (IEA) report on the oil market released late last week, global oil demand is predicted to rise 1.7m barrels per day (mb/d).
World oil production is projected to fall by 870,000 barrels per day (kb/d) in Q1 2024 when compared to the end of last year, with this supply crunch expected to last throughout the year.
"Demand is staying high, while supplies are getting tighter, particularly on the fuel side. The refining margins are also very strong and a positive for crude demand," said Dennis Kissler, senior vice president of trading at BOK Financial, told Reuters.
The continued impact of delays in the Red Sea has had an impact, the IEA report said, as the price of Brent Futures rose by $2, with shippers re-routing goods around the Cape of Good Hope to avoid attacks by Houthi rebels.
OPEC
The prediction of increased demand and decreased supply came weeks after a group of oil-producing nations agreed to cut production to avoid a future supply glut.
Earlier this month (3 March), several members of the Organisation of Petroleum Exporting Countries (OPEC) and their allies announced they would be extending their voluntary cuts into the second quarter of this year.
A statement from OPEC+ said that countries including Saudi Arabia, Iran and Algeria would be voluntarily cutting their output to support the move. It is seen as part of a strategy to prop up prices amid a struggling global economy.
Even with recent developments, the strategy is expected to continue further into 2024, although doubts remain about OPEC members’ desire to continue it. Analysis from S&P Global found that several key members of the coalition, notably Iraq and Kazakhstan, had significantly overproduced their agreed quota in February.
Global conference
CERAWeek is a summit for the world’s oil and energy elite, and a number of the industry’s leading lights are meeting there this week to discuss the future of the commodity and of the energy transition. The leader of Saudi Arabia’s national oil company used the opportunity to urge againsta complete net zero transition.
“We should abandon [this] fantasy of phasing out oil and gas,” said Saudi Aramco CEO Amin Hassan Nasser in response to an audience question, adding that he rejected the prediction that 2030 would be when the use of oil ‘peaks’.
US energy secretary Jennifer Granholm also used the opportunity to say that the expected “pause” on US liquefied natural gas exports will be in the “rearview mirror” by next year.