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Extreme volatility in crude oil blows up market forecasts | markets

An oil refinery in Portugal



An oil refinery in Portugal

The announcement of a blockade on Russian oil exports by the United States and the United Kingdom has stressed the market and increased volatility. The price of a barrel of Brent oil, which this week reached $140, fell 13.2% yesterday to $111.14. In this context, the OPEC clings to its forecasts indicating that the distortions are due to market subjectivities, while other voices in the sector affirm that the Russian blockade will catapult crude oil above 150 dollars. Brent futures for June fell to 108 dollars.

Mohammad Barkindo, secretary general of OPEC, indicated yesterday that there is no “physical scarcity” of fuel, but rather that the price has skyrocketed due to investor fear. In this sense, the executive supported the affirmation of his organization that current production covers world demand.

Norbert Rücker, director of economics and research at the Swiss bank julius baer, agrees with this vision: “The world is not about to run out of oil. We are witnessing a price crisis rather than a supply crisis. Beyond the short-term uncertainty, we are confident that the rise in oil prices will follow more or less well-known patterns. Such sharp moves up generally follow moves down over weeks and months, not years.” The authorities of the United Arab Emirates indicated yesterday that they will encourage OPEC to increase its oil production to mitigate the impact of the crisis.

Bank of America also expects the price of oil to decline. The entity has proposed three scenarios for the current situation, in two of which oil remains between 95 and 110 dollars with an increase in the production of other actors. However, he warns that in a very negative scenario, a barrel would remain around $130: “Less than half of Russian exports could be replaced with a combination of increased US supply and barrels from Iran and OPEC+. If more Russian oil flows to China, the oil markets could still stabilize at a high price.”

However, some analysts are not convinced that OPEC is being objective. Ignacio de la Torre, Chief Economist of Arcane Partners, states that oil has more upside than downside risk. “In the narrow market that we find ourselves in, the price is going to rise and it is going to generate inflation. The accounts do not add up. Even if the productions of Iran and Venezuela are extended, it will not be enough to compensate Russia.”

Other industry voices, such as Western Petroleum (OXY) and Energy AspectsThey assure that oil will go up. “I don’t know exactly when, but with the supply and demand situation we’re in, it will definitely exceed $150,” says Vicki Hollub, CEO of Occidental Petroleum. The executive points out that even with Washington’s intention to increase oil production, the problem of adapting supply lines arises in the short term, since expanding its capacity can take several months or even years. Norwegian energy consultancy Rystad He takes the forecasts even further and says that a barrel of Brent could touch $240 in the event of new sanctions that would make supply unreplaceable.

The European problem of Russian supply

A Russian supply disruption would hit some European partners harder than others. According to the latest figures from the International Energy Agency, in Spain and France Russian oil represents only 11% and 13% of total crude oil imports, respectively. In contrast, in countries such as Germany or Poland, crude oil from the Urals represents 30% and 58% of imports. A price increase, however, would hit all partners equally.
Germany, like other central and eastern European states, receives much of its exports via the Druzhba pipeline, which connects the Ural oil fields with central Europe.

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