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Jun 10, 2022
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Oil predicted a deafening crash: prices fell by half

In the coming weeks, the cost of a barrel of oil may soar to an unprecedented level – $ 150. Both foreign and domestic analysts are confident in the new absolute world record. The main reason is the EU embargo on Russian oil supplies. However, according to some forecasts, by the end of the year the world energy market may expect a shock of a different kind, and quotes will fall to $50-60.

With a detailed analysis of the reasons why oil quotes will soon be able to exceed a record high line, the influential American magazine Foreign Policy made. The publication lists the internal problems of the US fuel market: consistently high consumption, traditionally increasing during the holiday period; the shortcomings of the processing industry after the coronavirus; the highest rate of consumption of fuel from storage in history …

The only external factor pushing the quotes up is the sanctions against Russia. According to the magazine, even an increase in production by 720 thousand barrels per day by American companies and an increase in the capacity of OPEC countries by 600 thousand “barrels” per day in July and August will not be able to compensate for the losses from the oil embargo to the world market.

A similar forecast was made by the executive director of one of the largest oil traders Trafigura, Jeremy Weir, who said that the global energy market is in a “critical” state due to the limitation of supplies from our country. And the head of the American financial conglomerate JPMorgan, Jamie Dimon, says that by the end of the year oil will be able to take the bar not even at $150, but at $175 per barrel.

The barrel reached a record high of $143.95 in June 2008. At that time, the market reacted extremely painfully to any instability in the Middle East, and then the rumors about a possible Israeli missile and bomb attack on Iran forced stock market players not to skimp on energy resources.

The global financial and economic crisis put an end to the price rally, which by December 2008 brought down the cost of “black gold” by more than four times, to $33. Commodity prices began to rise slowly only six months later, and subsequently a barrel did not go beyond $60 for a long time.

An increase in the cost of oil above the historical maximum set fourteen years ago is the baseline scenario, since quotes by the end of June, that is, in the next two or three weeks, will go into the range of $ 170-180 per barrel, TeleTrade analyst Alexey Fedorov echoes overseas colleagues.

“The conditions for such rapid growth have already been formed. The EU embargo on the supply of Russian oil creates a sufficient number of obstacles to the redirection of supplies from Russia to Asia and from the Middle East to Europe. In conditions of limited logistical capabilities, primarily, an insufficient number of tankers, this situation will easily provoke a local shortage of raw materials supply,” the expert notes. However, Fedorov believes, oil prices will not stay at a high level for a long time. A barrel under no circumstances will be able to remain at a record level for more than one or two months, and by the end of August a drop to $50-60 per barrel is not excluded.

Under what conditions is it possible to double the price of a barrel?

Firstly, the market will sharply cool down at least some calming of the geopolitical situation and the cessation or at least weakening of sanctions rhetoric against this background.

Secondly, the United States is working hard to reduce oil prices: they periodically throw away part of their underground reserves for sale and carry out diplomatic processing of Middle Eastern oil giants – Saudi Arabia and the United Arab Emirates, persuading them to increase world export supplies.

Washington has significantly softened its position with respect to the sanctioned countries – Venezuela and Iran, allowing them to increase exports to Europe.

And, finally, Russia itself can bring down prices if the global market is convinced that our country has managed to quickly reconfigure the logistics of its supplies from the traditional Western European direction (now effectively closed by sanctions) to the Asia-Pacific. If by the end of summer these factors, or at least some of them, work simultaneously, the price of a barrel will roll down at the same speed with which it is now striving for record heights.

So far, our country has been able to benefit from a local surge in prices for “black gold”. According to the Accounts Chamber, in the first quarter of this year, Russia’s revenues grew by a third to 7.17 trillion rubles, with about 3 trillion rubles provided by the oil and gas industry, doubling its revenue in three months.

Higher revenues, which are helping to strengthen the federal budget, give domestic oil companies time to adjust to the extreme changes that have taken place in the industry and work out the details of the transfer of Russian oil from the European region to the Asian direction. True, the entry fee to the Asia-Pacific market is not small – Russian suppliers have to agree with a 30-40% discount, if only to quickly add the volumes of oil sent by the tanker fleet.

Meanwhile, the period of falling oil prices predicted by analysts threatens to deal a painful blow to our country’s income and the well-being of the population. “The absence of a fiscal rule that previously controls the growth of budget spending will cause another powerful wave of weakening of the Russian currency. By the end of the year, the rate may return to 100-110 rubles per dollar and to 115-125 rubles per euro. This means that the Russian economy is waiting for an additional downturn in business activity and acceleration of inflation, warns Fedorov.

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