The Russian/Ukrainian Conflict & It's Impact On Oil Prices
Mar 04, 2022
By Jeremy Peebles, GCC V.P. of Petroleum
The top headline for 2022 so far has been the Russia and Ukraine conflict, and for good reason. This situation has been sending shockwaves through the commodity markets and oil has not been spared. Russia is the number two producer and exporter of oil in the world. They are also suppling the US with 600,000 barrels per day, our 3rd largest supplier. Russia is a crucial source of oil in this undersupplied global and domestic market. So crucial, that the market can’t afford that those supplies could be disrupted anytime soon. So as sanctions against Russia have already begun rolling out, not one was directly targeting Russia’s oil and gas supplies. Yet can the Russian economy really be hurt if you don’t target their oil and gas industry? Even though the rest of the world has realized this, there will inevitably be some setbacks.
Initial reports are stating that key export areas out of Russia are being shut down and major buyers of Russian oil are struggling to get bank guarantees. If oil can’t be paid for, then oil will not ship. These early supply disruptions do not bode well in such a delicate market. The day of the initial invasion WTI crude rose 8% to just above $99 a barrel, however the market pulled back most of those gains throughout the day. I do not take to much comfort in the initial pull back though, as U.S. distillate fuel oil inventories have fallen to the lowest seasonal level since 2014. At the same time seasonal demand levels are at a 4 year high. I believe we are going to continue to see very volatile fuel and oil markets regarding both prices and supply, with a high probability of a significant market run-up. Please contact us to discuss some options to help mitigate market risk for your business.
The top headline for 2022 so far has been the Russia and Ukraine conflict, and for good reason. This situation has been sending shockwaves through the commodity markets and oil has not been spared. Russia is the number two producer and exporter of oil in the world. They are also suppling the US with 600,000 barrels per day, our 3rd largest supplier. Russia is a crucial source of oil in this undersupplied global and domestic market. So crucial, that the market can’t afford that those supplies could be disrupted anytime soon. So as sanctions against Russia have already begun rolling out, not one was directly targeting Russia’s oil and gas supplies. Yet can the Russian economy really be hurt if you don’t target their oil and gas industry? Even though the rest of the world has realized this, there will inevitably be some setbacks.
Initial reports are stating that key export areas out of Russia are being shut down and major buyers of Russian oil are struggling to get bank guarantees. If oil can’t be paid for, then oil will not ship. These early supply disruptions do not bode well in such a delicate market. The day of the initial invasion WTI crude rose 8% to just above $99 a barrel, however the market pulled back most of those gains throughout the day. I do not take to much comfort in the initial pull back though, as U.S. distillate fuel oil inventories have fallen to the lowest seasonal level since 2014. At the same time seasonal demand levels are at a 4 year high. I believe we are going to continue to see very volatile fuel and oil markets regarding both prices and supply, with a high probability of a significant market run-up. Please contact us to discuss some options to help mitigate market risk for your business.