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Description:
The European Union is preparing to completely abandon Russian oil imports. Find out how the global oil market will change in this article.
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The EU sanctions on Russian oil threaten to drive millions of barrels from the world market, which is already experiencing severe shortages. In spite of this, oil-producing countries have decided to steadily increase the flow of oil to the world.
Since the beginning of this year, the price of oil in the U.S. has already risen by 43% to $109.01 per barrel. The international benchmark Brent is at $111.81 per barrel now.
The price of gasoline is directly related to the price of crude oil. Over the past year, the U.S. average has already risen by $1.3 to $4.19 per gallon.
Similarly, the price of diesel fuel for trucks and farm vehicles is tied to the price of crude oil. Since last year, it has risen even more than gasoline, averaging $5.43 per gallon across the United States. This should affect the trucking market and the possible change in average salary in this sphere.
News like this makes us fear that some areas of the U.S. will experience severe diesel fuel shortages in the near future. On the East Coast, stocks have already fallen to historic lows.
Wholesale and retail prices for diesel fuel broke through a historic high on the backdrop of this crisis. Today it is already more expensive than in 2008, when the price per barrel of crude oil was one and a half times higher than the current price of $150 per barrel.
Many oil refining enterprises in America are currently operating well below their usual capacity, which can only mean further aggravation of the situation.
For example, PBF Energy Inc., which owns the Paulsboro refinery near Philadelphia, notes that it has stopped several of its units due to an acute shortage of semi-refined oil feedstock, which used to be imported from Russia.
The OPEC+ alliance, which Russia is a member of, is taking an extremely cautious approach to the current situation, which continues to worsen the energy crisis in the world. Oil prices will continue to rise, entailing further increases in the prices of all its derivatives: jet fuel, gasoline, diesel fuel.
At its latest online meeting, the alliance continued to adhere to its earlier roadmap and agreed to gradually open the oil taps. In June, the increase should be 432,000 barrels. The point of this plan is to gradually restore the cuts caused during the 2020 pandemic recession.
But that increase in oil production still does not meet the demands of the U.S. and other consumer countries, which does not allow to reduce oil prices, which have risen by more than 40% this year. Further price increases would have a negative impact on global inflation, reducing the purchasing power of people around the world. This could prolong the economic recovery for many years.
A more significant increase in the price of oil did not occur as a result of the reduction in demand under the COVID-19 program by China. In addition, the U.S. and other major oil-consuming countries are currently releasing raw materials from their own strategic reserves.
Leading world analysts predict the loss of about 2 million barrels of oil on the world market during the next six months if all EU countries adopt sanctions against oil from Russia. And Russia itself will be forced to significantly reduce oil production, losing its largest customer.
OPEC has made it clear to European officials that the oil cartel’s production levels will not be increased to compensate for the loss of Russian oil. Some member countries of the alliance have already faced the inability to meet their production quotas.
Russia was the largest oil exporter in the world and the share of Russian oil in the world market was 12%. Rejection of its oil and gas would unambiguously entail a significant increase in energy prices. Before the war in Ukraine, the European Union received about 3.8 million barrels of oil from Russia daily for their refineries.
Over the next six months, the European Union plans to phase out Russian oil and eventually stop buying it entirely. Faced with an unprecedented surplus of oil, Russia will try to sell it to Asian countries that do not support the boycott. However, it is unlikely to be able to sell much of this surplus, even at record low prices.
One reason for this impossibility is the low capacity can be sent by sea. But so far there are no known tankers willing to work with Russia, despite the risk of possible sanctions. Also under the secondary sanctions of the European Union may fall banks and insurance companies involved in this kind of transactions. All this makes the prospects of Russian oil sales in the near future very vague.
The leading analysts also agree that the global growth of oil prices will continue. At the moment, the global oil market has not yet fully assessed all the possible consequences of the introduction of the European Union embargo on Russian oil supplies. This means that in summer we will see a steady increase in prices for crude oil, which will steadily lead to an increase in prices for all products of its refinery.
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