24.03.202223:26 Forex Analysis & Reviews: A looming supply shock for crude oil drives crude prices up

Oil is getting more expensive on Thursday afternoon after a slight morning decline in value. Thus, the price of May futures for Brent crude oil at the time of preparation of the material rose by 0.3% to $121.95 per barrel. The price of May WTI futures rose by 0.04% to $113.05.

The price of oil is rising on fears of a supply shortage. The latest data of the US Department of Energy on oil reserves in the country unpleasantly surprised the market. It turned out that commercial stocks for the past week unexpectedly decreased by as much as 2.5 million barrels, despite the fact that analysts had predicted an increase in stocks by 0.1 million barrels.

The oil market has been going through a real shock in recent weeks, as the EU countries have spoken out against the purchase of Russian energy carriers, including oil. US President Joe Biden announced a ban on the import of oil, gas and coal from Russia to the country. Following him, the UK government announced that it intends to gradually replace imports of Russian oil and petroleum products by the end of this year. The EU countries have also announced their intention to abandon Russian oil and have already provided a plan to reduce their dependence on all Russian energy carriers.

In response to these unprecedented measures, Russia warned that if such a ban is implemented by the above-mentioned countries, any Russian gas supplies to Europe will stop. For Europe, this could be a real failure in the confrontation with Russia in the energy sphere, because it is too dependent on gas supplies from Russia and it will not be able to replace this raw material in the near future, no matter how much it wants to.

Russia currently ranks third in the world in oil production, the first place belongs to the United States, the second – to Saudi Arabia. On average, Russia exports a little more than 4.5 million barrels of oil per day, and more than half of this volume goes to Europe.

The United States can well afford to challenge Russia, because they are much less dependent on its oil. So, in 2020, Russia imported only 3% of the total volume of oil supplied to other countries to the United States.

It's the same story with Russian gas. Gazprom exported at least 185 billion cubic meters of gas abroad in 2021. In the European Union, Russia accounts for about 40% of the total volume of imported natural gas. If Russia suddenly stops gas supplies, Italy and Germany will suffer enormous damage, since today they have almost no alternatives to Russian blue fuel.

It is worth noting that the United Kingdom is still less dependent on Russian energy carriers than many European countries. But it is worth recognizing that this dependence, although small, is there. So, in Britain, Russian supplies account for 8% of the total volume, and Russian diesel fuel – all 18%.

Due to the intentions of Western European countries to boycott Russia, some of the world's most respected oil traders expect that this year the price of black gold has every chance to rise above $200 per barrel.

For example, Pierre Andurand, who is a popular hedge fund manager in the oil sector, unexpectedly said at the FT Commodities global summit in Lausanne that after the announced intentions of Western countries, it will not be possible to return to normal work, at least in the coming months. Moreover, Andurand is sure that the European side is forever losing Russian supplies. Taking into account this impending restructuring, the current year can demonstrate oil to everyone at $250 per barrel.

Other veteran oil specialists who spoke at the same conference also agreed that Russian oil and petroleum products will remain inaccessible to the European market in the near future.

Doug King, head of the Merchant Commodity Fund RCMA, is also confident that oil will rise to $200-250 per barrel this year and this will not be a temporary phenomenon, but a real shock to the supply of crude oil.