Soaring oil prices

The price of Brent crude oil rose by more than $7.5/b yesterday, its second biggest daily gain in the last decade. And it continues to rise this morning; it has already exceeded $113/b. WTI is following suit, also over $110/b, and the API data ahead of today’s EIA stocks report is not likely to calm things down: stocks at Cushing are said to have fallen by another 1mb, while domestically they are said to have contracted by 6.1mb. The timespreads on Brent are reaching record levels: almost $5/b for the prompt timespread and more than $24/b if we compare the 1st contract to the +12-month contract. Tension is extreme in the short term.

The intensification of the fighting in Ukraine and the sanctions against Russia have caused this surge. And above all, although these sanctions theoretically spare commodity flows, there are no longer any buyers for Russian oil, despite a Ural discount to Brent of almost $20/b. In addition to the physical loading constraints associated with the fights, there is total uncertainty as to the potential penalties that could be applied against buyers or the banks that help finance the transactions.

The IEA’s announcement of 60mb of strategic reserves being released, half from the US and half from 30 other countries, had no impact: the news was fully anticipated and much more would be needed to cope with falling Russian oil exports. Can today’s OPEC meeting result in anything other than the scenario written since last July of a 400mb/d increase in production quotas (including +100mb/d for Russia, let’s not forget)? In any case, it would take the announcement of a very sharp increase in production by Saudi Arabia and its neighbours to reverse the current trend.