Crude oil prices are expected to soar due to all the uncertainty surrounding new developments within Russia. Oil closes at its highest price Prior to the Wagner Group’s advance toward Moscow, Russia restored its domestic crude oil processing to 5.49 million barrels a day in the week ending June 14, down from a peak of 5.78 million barrels in the first week of April. The reason is that it is easy to sell refined products, like diesel, jet fuel, and gasoline to circumvent sanctions. China and India are aggressively refining Russian crude oil to help Russia circumvent sanctions. Latin America is also a big buyer of Russia’s refined products, especially diesel, which is indicative that the U.S. no longer has any meaningful influence over Latin America. Russia is having a hard time maintaining oil production. And a even harder time exporting the oil it does produce
“Putin has total chaos now,” Yale professor and Russia expert Jeffrey Sonnenfeld told CNN.
Analysts at Rystad Energy said bouts of geopolitical uncertainty in major oil-producing nations over the past 35 years — ranging from civil unrest to coup attempts, armed conflicts and changes of governments — had on average added 8% to the price of oil in the five days after the triggering event. Any meaningful loss of Russian energy would force China and India to compete with Western nations for supplies from other producers. If political chaos restricts exports of other commodities, such as grains or fertilizer, that could also send supply and demand out of whack. And that could push up prices for everyone.Richard Bronze, head of geopolitics and co-founder at Energy Aspects, said markets would now need to figure out the extent to which prices should rise to reflect the greater risk to Russian supply, a view shared by other analysts.
“This seemingly attempted coup only brings uncertainty, which could be reflected through into higher prices,” Matt Smith, lead Americas oil analyst at Kpler said. “Such upheaval and uncertainty as we have seen in recent days could bring support to prices given the potential for supply disruptions — and the fear of them — that wasn’t a consideration prior to the weekend.”
Global energy and food prices shot up in the wake of last year’s invasion of Ukraine, turbocharging inflation in Europe and the United States. It has fallen from multi-decade highs since, but the battle to control prices is not over and is now in a decisive phase. “The last leg of the journey to restore price stability will be the hardest,” the Bank for International Settlements — the bank for central banks — said in its annual report Sunday. There was a “material risk that an inflation psychology will take hold,” leading to what economists describe as a wage-price spiral, it said.
“The global economy is at a critical juncture. Stern challenges must be addressed,” general manager Agustin Carstens told the annual general meeting of the BIS in Basel.
Signs that global energy demand could weaken this year as economies slow have pushed US crude prices down by nearly 14% so far this year to just under $70 a barrel. (It peaked above $120 a year ago.) The international benchmark — Brent crude — is down by a similar margin.
But anything that could jeopardize Russia’s ability to keep supplying global energy markets will be watched anxiously by policymakers in the West, and by the country’s biggest customers in Asia.
“If anything … disrupts those flows, then that would definitely be a an upside risk for oil prices, particularly as we’re already moving into a part of the year when global demand for oil is expected to significantly exceed supply,” Bronze said. Russia is important player in the enery markets. At just under 10 million barrels per day,
it produces about 10% of global crude oil demand. And with total oil exports of nearly 8 million barrels per day, Russia is the second biggest power by a wide margin after Saudi Arabia in the OPEC+ alliance of leading energy producers.
Western sanctions have had the desired effect of reducing the amount of money Moscow earns from energy, but Russia’s oil exports — in volume terms — have rebounded to levels seen before it invaded Ukraine as China and India mop up barrels shunned by G7 nations. Bronze, at Energy Aspects, was cautious about drawing parallels with Libya and Venezuela.
A better comparison would be the immediate aftermath of the fall of the Soviet Union. It took a long time for the Russian oil industry to recover from that.
“You had real issues in terms of investment and real issues in terms of stability in the oil sector, which had already been heavily damaged in the last years of the Soviet Union,” he added. Sonnenfeld told CNN that the risk that Russian upheaval could ripple out to weaken the global economy had fallen over the past 18 months. The Ukraine war had backfired by forcing Europe to pivot to alternative sources, he added. Though it is too early to say anything will happen or change, “this is by no means over, and so it does raise new questions about what might follow,” Bronze said. NN BlackMask Pod Cast:
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