Oil Prices

Oil Prices – LONDON, March 2 () – Brent crude prices are rising sharply on the same path as in 2007-08, when they reached a record $150 a barrel before demand erosion began and prices collapsed in the global recession, analysis by Mitsubishi UFJ Financial Group (MUFG) shows .

Brent crude hit $113.02 on Wednesday, its highest since June 2014, as fears of a supply disruption rose after heavy sanctions on Russian banks in response to the escalating conflict in Ukraine.

Oil Prices

“Oil prices are so disconnected from the marginal cost of supply – given the severe oil shortage – that it’s getting to the point where demand destruction is becoming common,” said MUFG’s head of emerging markets research, Ehsan Khoman.

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“Inventory shortages are fracturing oil markets today, decisively ahead of today’s geopolitics – the Russia-Ukraine (crisis) is only turbocharging today.”

A coordinated release of 60 million barrels of oil from strategic reserves was agreed by member states of the International Energy Agency (IEA) on Tuesday but failed to moderate rising prices.

Oil inventories in the developed world have declined steadily in recent months amid a sharp recovery in demand after the pandemic.

Meanwhile, global spare production capacity, which can be switched on at short notice, has been shrinking as the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia have increased their production targets. That means oil producers pay buyers to take them. the product off their hands due to fears that storage space may run out in May.

Chart: Oil Price Surges To Highest Since 2008

As a result, oil companies have turned to leasing tankers to store excess supply, and this has forced US oil prices into negative territory.

The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell to minus $37.63 a barrel.

“It’s crazy off the charts,” said Stewart Glickman, an energy-equity analyst at CFRA Research. “The demand shock was so great that it exceeded anything people could have expected.”

Monday’s sharp drop was driven in part by technical issues in the global oil market. Oil is traded at its futures price and the May futures contracts are expected to expire on Tuesday. Traders were eager to write off these payments to avoid having to take delivery of the oil and incur storage costs.

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June WTI prices also fell, trading above $20 a barrel. Meanwhile, Brent crude – the benchmark used by Europe and the rest of the world, which is already trading based on June contracts – was also weaker, down 8.9% to less than $26 a barrel.

Mr Glickman said the historic reversal in prices was a reminder of the stress facing the oil market and warned that June prices could also fall, if the shutdown ban remained in place. “I’m not very optimistic about the outlook for oil companies or oil prices,” he said.

OGUK, the trade lobby for the UK oil and gas sector, said negative US oil prices would affect companies operating in the North Sea.

“The picture in this US market is different to those driving direct Brent produced in the UK but we will not escape the impact,” said Deirdre Michie, head of OGUK.

The Relationship Between Oil Prices And Inflation

Earlier this month, OPEC members and their allies finally agreed on a record deal to cut global output by around 10%. The agreement was the largest cut in oil production ever negotiated.

“It hasn’t taken long for the market to recognize that the OPEC+ deal, in its current form, will not be enough to stabilize the oil market,” said Stephen Innes, chief global market analyst at Axicorp.

Major exporters – OPEC and allies such as Russia – have already agreed to cut output by a record.

In the United States and elsewhere, oil producers have made business decisions to cut production. But the world has more crude oil than it can use.

There’s An Unusual Divergence Between Energy Stocks And Oil Prices

And it’s not just about whether we can use it. It’s also about whether we can store it until the shutdown eases enough to create some additional demand for oil products.

Capacity fills up quickly on land and sea. As that process continues, prices are likely to fall further.

It will take a recovery in demand to really transform the market, and that will depend on how the health crisis unfolds.

There will be further supply cuts as private sector producers respond to low prices, but it is hard to see enough to have a fundamental impact on the market.

Singapore Institute Of International Affairs

For U.S. drivers, the drop in oil prices — which have fallen by about two-thirds since the start of the year — has hit the pumps, though not as much as Monday’s drop might suggest.

“The silver lining is that if you have to be on the road for any number of reasons, you’re filling up a lot less than you would have even four months ago,” Mr. Glickman said. “The problem for most of us is that even if you could top up, where are you going to go?”

The President of the United States, Donald Trump, has said that the government will buy oil for the country’s national treasury. But concerns continue to grow that US inventories will run out, with inventories at Cushing, the main US oil hub, up nearly 50% since early March, according to ANZ Bank.

Mr Innes said: “It’s a dump by all accounts where nobody, and I mean nobody, wants to deliver oil with Cushing’s storage facilities filling up every minute. Oil prices topped $80 (£59) a barrel on Tuesday, hitting a three-year high as the pound fell.

Chart: U.s. Oil Price Rallies Amid Standoff With Russia

Brent crude, the global benchmark, rose as high as $80.69 on the day, the highest since October 2018.

Investment bank Goldman Sachs said Brent could reach $90 a barrel by the end of the year and warned that rising input costs, higher gas prices and weaker growth were likely to weigh on European corporate earnings in 2021.

“As growth slows, it becomes more difficult for companies to pass on higher input costs, which are the main risk to net income,” the Wall Street lender said.

It came as the pound suffered its biggest one-day decline against the dollar on Tuesday, falling 1.3% to just below $1.3530 on inflation fears. It was the lowest since January, as investors sought refuge in the dollar.

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Stock markets also fell, with European indexes in the red and Wall Street stocks similarly down.

On the other hand, Brent crude is already up 55% so far this year. West Texas Intermediate (WTI) also rose to around $75 a barrel.

Oil prices fell at the start of the pandemic. In April of last year, they fell below zero for the first time in history as shutdowns dampened demand while producers continued to pump crude from their wells.

Global oil supplies have also been hit by hurricanes Ida and Nicholas, which are moving through the Gulf of Mexico and damaging US oil infrastructure.

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Dramatic increases in natural gas prices have also made oil a relatively cheaper option for power generation, which in turn has boosted demand.

The world’s largest independent oil trader, Vitol Group, said it expects global crude oil demand to increase by 500,000 barrels per day this winter.

“Similarly, India, the second-largest crude importer, also increased its oil imports to a three-month high in August as refiners started stockpiling as they anticipate higher demand going forward,” said Naeem Aslam, head of market analysis at Think Markets.

The Organization of the Petroleum Exporting Countries (OPEC) has also said that demand will increase, but it expects it to be slightly lower, at about an additional 370,000 barrels per day.

A Price War Has Sent Oil Prices Plummeting

During the pandemic, several members of the Opec+ group of producers, which includes ally Russia and several other countries, have cut output and have since struggled to ramp up to meet improving demand.

In Britain, motorists are struggling with fuel prices at an eight-year high, says the RAC, due to a shortage of truck drivers in the country.

The price of oil is directly linked to the wholesale cost of fuel as crude oil is used to produce petrol and diesel.

“With the cost of oil rising and now almost three years higher, wholesale prices are being forced up, meaning retailers are paying more than they were a few days ago for the same amount of fuel,” he said. of oil has fallen to levels not seen since 2002 as demand for crude collapsed amid the coronavirus pandemic.

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Brent crude fell to $22.58 (£18.19) a barrel at one point on Monday, its lowest since November 2002.

Meanwhile, the price of US West Texas Intermediate (WTI) fell below $20 a barrel and near an 18-year low.

Oil prices have more than halved in the past month as companies cut or halt production.

In addition to falling demand, a price war broke out earlier this month between Saudi Arabia and Russia.

What’s Behind The Drop In Oil Price?

This started when Saudi Arabia failed to convince the Russians

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