Several factors are leading to the bearish movement in oil prices witnessed at the beginning of this month. On the supply side, the fears of severe disruptions in Russian oil exports due to sanctions or Russia cutting its exports have somehow eased compared to the beginning of the invasion of Ukraine. Additionally, the US and the International Energy Agency (IEA) have agreed to release historic volumes of their strategic petroleum reserves.
On the demand side, China is reimposing localised lockdowns amid surges of Covid-19 cases which will reduce mobility and, thus, the demand on oil for transport. Globally, slowing economic growth is a major downside risk. When combining all these factors and developments, we can clearly see why we had this bearish movement in the oil prices in the past week. However, this does not mean that the crisis is over and the market still has the potential to react in any direction.
On the EU’s energy response to the invasion, Dr Nakhle argues that the crisis in Ukraine had reflected a much-coordinated EU response, namely from the political side to a larger extent. The problem in this economic bloc is that individual countries have varying dependency levels on gas and other primary energy sources as well as on Russian gas. This is why individual countries will have diverging approaches to handling the geopolitical dimension. The EU cannot completely replace Russian gas and oil exports overnight but it is heading in the direction of reducing its dependence on Russian energy exports significantly.
Watch the discussion:
“Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022
“Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022
“No endgame for Ukraine“, Christof Rühl, Feb 2022
“OPEC+ sticks to its plan“, Dr Carole Nakhle, Apr 2022
“Putin demands gas exports to be paid in rubles, and US SPR release“, Dr Carole Nakhle, Apr 2022
“Energy Market Dynamics“, Dr Carole Nakhle, Mar 2022
“The EU’s 4th round of sanctions on Russia“, Dr Carole Nakhle, Mar 2022
“Can Europe completely cut its reliance on Russian energy supplies?“, Dr Carole Nakhle, Mar 2022