“We are now in talks with our European partners and allies to look at the possibility of a comprehensive ban on Russian oil imports.” With the announcement of the March 6 bombing, Anthony Blinken, the US Secretary of State, set the world oil market on fire. In the following hours, West Texas Intermediate (WTI), American benchmark crude rose more than 9%. Brent crude rose nearly $ 140 a barrel, doubling in price on December 1st, before falling to 3 123 on March 7th. Now there is speculation that if the war in Ukraine gets worse, oil could touch 200 200 a barrel.
This is the volatile background of the oil industry’s most important gathering of the year. Thousands of energy executives, including Saudi Aramco and ExxonMobil’s boss, Secretary-General of the Petroleum Exporting Countries (OPEC) and the US Secretary of Energy, and other Grandi, have come to Houston for Syracuse, an annual conference. S&P Global, a financial information company. This week’s program covers long-term issues such as climate change and energy change, but recent events confirm that geopolitics will dominate the gabfest.
The oil market is on the edge for three reasons. First, there is growing concern that supplies may be insufficient to be disrupted. The balance between supply and demand was already tight last year. In 2021, the use of fossil fuels has been strongly revived since the Covid-induced recession. The International Energy Agency (IEA), an official forecast, expects global oil demand to return to pre-epidemic levels by the end of the year. Cowid is currently retreating, with Americans preparing their gas-ghazals for the summer “driving season.”
That is, says Avi Rajendran of Energy Intelligence, an industry publisher, which means companies should create inventory now, but they are not. The problem is that oil supply is limited due to low-investment and covid-related factors. The OPEC cartel was unable to meet their own production quotas. Mr Rajendran thinks the market was supplied about 1m barrels (bpd) less per day before the war in Ukraine. This pushed the price towards 100 per barrel.
The second reason for the price increase in response to Mr. Blinken’s statement is that Russia is the world’s second largest oil exporter, with its 4.5m bpd crude exports and an additional 2.5m bpd oil-products exports. If all these exports were stopped as a result of the US-led energy embargo or the export embargo used by Vladimir Putin as an economic weapon, it would be a serious blow to the world economy.
To soften it, Westerners have turned to buffer stocks. The IEA announced on March 1 that its member countries would coordinate the release of about 60m barrels of oil from their strategic reserves. The IEA has only done so before the Iraq-Kuwait war in 1990, Hurricane Katrina in 2005 and the Libyan civil war in 2011. But Damien Kurvalin, a banker at Goldman Sachs, argues that this one-point release of strategic stocks is “dwarfed by the potential level of disruption to Russia’s exports.” He thinks it will not compensate for the loss of Russian maritime exports in the long run.
Moreover, no other supplier, or any combination of them, has been able to quickly produce enough oil to compensate for the loss of all Russian exports. James West of Evercourt, an investment bank, thinks that even the mighty Saudi Arabia can handle a maximum of 1m bpd production in a few months. Total OPEC surplus capacity does not exceed 2m bpd. Oil production is increasing in Canada, Brazil and Guyana, but even if taken together, their growth will be much lower than 1m bpd this year.
That is why American power diplomats are working overtime to find other sources of oil to cover any deficit in Russia. One area they are exploring is their own shell country. Top federal officials from various cabinet ministries have landed at CERAWeek, hoping to persuade American oil operators to extract more black gold. The petroleum lobby is not happy with the Biden administration, which sees it as climate-obsessed and vindictive towards fossil fuels, so these overtures could prove awkward. What’s more, American shell output is already set to expand by 1m bpd this year. Severe supply chain pressures (one oil operator complains that the price of sand, an important component of the shale process, has tripled in the past) have led to this doubling – which could not happen in less than a year, under any circumstances.
One development that would be helpful would be the lifting of sanctions on Iran. It could potentially increase exports by about half a million bpd in six months and double in one year. Last week, a sanctions-relaxing deal between Iran, the United States and other world powers seemed imminent. However, Russia’s sudden demand for a guarantee from the United States that any sanctions on Ukraine would not affect Russia’s trade with Iran was a blow. American negotiators are also now negotiating with Venezuela, another country with oil exports restricted by sanctions, but Mr Kurvalin thinks the extra exports could produce only half a million bpd in a year.
The rise of “self-imposed sanctions” is a third cause of concern for energy traders. Surprisingly, Russian petroleum exports have become toxic even before the US imposed any public sanctions on them. The sanctions imposed on Russia so far have clearly avoided targeting its energy sector, but IEA chief Fatih Biral noted that this did not prevent them from reducing their petroleum exports. “There is confusion in many parts of the world as to whether Russia will be affected by the embargo on oil purchases,” he said. As a result, many Russian opponents are moving away from anything.
This has drowned Russia’s oil exports. David Fife of Argus, an energy publisher, thinks that about 2m bpd of Russian petroleum is “already out of the market somehow”. Western oil companies are under intense pressure to limit the use of crude and refined Russian products. Even companies in China and India, generally relaxed to avoid American sanctions, have avoided doing business with Russian-owned, operated or flagged ships or Russian ports. When news broke that Shell had raised 20 20 million by trading a discounted cargo of Russian crude, the firm faced a backlash after religiously withdrawing from several joint ventures in the country, prompting it to announce that it would cut any gains from Russian oil. Will place. Ukraine aid fund.
A slippery misery
The prospect of a Russian oil embargo has created a dilemma for the United States. On the one hand, Western leaders want to punish Russia for its aggression without leaving troops on Ukrainian soil, and power is the most powerful tool they have yet to use; Russia’s biggest remaining weakness is its massive energy exports. On the other hand, precisely because its exports are so large, shutting them down at once would create a risk of destabilizing the world economy. The IMF warned on March 5 that the consequences of the war and the economic sanctions were already “very serious” and could be “even more devastating” if the situation continues to escalate.
That is why Mr Blinken said in a statement on March 6 that the US would only impose sanctions on Russian exports (with allies or, if necessary, from itself) if it could ensure that “there is still an adequate supply of oil on the world market.” According to Richard Joswick of S&P Global Commodities, the reluctance of allies to join may be understandable, since the US imports little Russian oil while Europe is Russia’s biggest customer: it imports 2.7m bpd crude and 1m bpd oil feedstocks and products from Russia. Insights.
Is Mr. Blinken serious? A “shock and surprise” ban risks pushing America and Europe into recession. This may entice them into other, less dramatic alternatives. They can fine-tune things with graduate sanctions, as the United States did with Iran. The imposition of an energy embargo that would reduce Russia’s permitted exports every few months would give it an incentive to curb its misconduct. But the creative ambiguity and clumsiness involved in any attempt to subvert a ban can similarly lead to an oil spill.