Should crude oil prices trade at current levels?

Oil prices are a little lower on Friday morning, with Brent trading down 0.35% to $113.41 and West Texas Intermediate down 0.40% to $113.25, but this n It’s just a small dent in an otherwise high oil price, the highest since the early days of the war in Ukraine. The momentum is bullish and in the short term, it is possible that the prices will rise much more. For example, a sustained break above $115 a barrel could trigger a very short-term type of speculative buying that would quickly push prices up to $124 and potentially beyond.

Market watchers point to the fact that the United States is about to enter the peak of the summer driving season when the supply of refined products is relatively tight. In Europe, the EU, which is considering potentially banning imports of Russian oil, is causing many speculative purchases.

What’s going on with Russian oil shipments?

Despite speculation that Russian oil shipments to Europe are drying up, for the time being, Russian oil shipments are still arriving in Europe in almost unchanged quantities. So far, only the United States and the United Kingdom have introduced a ban on Russian oil, so most of the oil loaded onto ships in the Sea of ​​Azov (north of Crimea) continues to travel to European oil terminals.

It takes around nine days from the Sea of ​​Azov to the Dutch terminals and, looking at international shipping data, there has been no drop in the number of ships making deliveries. If the European Union were to ban imports of Russian oil, it would significantly change the supply situation, but so far Europe has not reached an agreement on this.

For starters, Hungary is strongly opposed to the ban, and as a result, the EU has changed its latest round of sanctions against Russia to suit Hungary. Secondly, since the introduction of various sanctions against Russia, Greek and Maltese shipowners have rushed to the Black Sea to provide their services. One reason is that while the UK does not allow Russian ships to be unloaded, it still allows Russian cargoes to be unloaded, provided they were shipped under a different flag.

What does all this mean for the global oil market?

This could possibly cause a divergence between West Texas Intermediate and Brent prices. Data recently reported by the American Petroleum Institute shows U.S. crude oil inventories at their lowest level since 2013 and other official data from the U.S. Energy Information Administration due out later Friday is expected to confirm this tension. .

However, as the EU debates a possible ban on Russian oil, resistance from Greece, Malta and Hungary will make it difficult to reach a consensus on the issue and Russian oil is expected to continue to flow in Europe in the coming weeks.

There has also been no sign of a decline in global oil production, in fact producers have recently increased production, but only moderately. OPEC has argued that it makes sense to only increase production by a small amount as China battles the latest wave of Covid, as lockdowns in Shanghai and Beijing are also affecting local demand.

So until there really is a European-wide ban on Russian oil, any rally in Brent should be viewed with some caution and trading is likely to be sustained in the near term.

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Felix J. Dixon