Oil prices could surge beyond US$130 per barrel

Feb 25, 2022 News

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– but consumers will feel squeeze at gas pumps, power bills – Rystad Energy

Kaieteur News – Rystad Energy, the biggest independent energy consultancy in Norway, and a world-leading analysis company for the oil and gas industry, noted that Russia’s invasion of Ukraine will likely see oil prices surging to around US$130 per barrel. It warned however that fears about supply scarcity will therefore see consumers feeling the squeeze at the gas pump and in their power bills.
Specifically making this forecast was Chief Executive Officer (CEO) of Rystad Energy, Jarand Rystad. The Norwegian physicist in his recent analysis of the Russian invasion that has dominated international and local media noted that the tragedy of the situation cannot be underestimated, while adding that other implications of the conflict pale compared to the potential human cost on both sides.
Rystad said full-scale military conflict between Russia and The West is unlikely. Be that as it may, he noted that a deep economic war is almost inevitable. Rystad said, “Russia cannot win an outright economic war, but it does have a major weapon to wield – oil and gas exports. Demand for oil and gas in The West is only rising, and a global energy crisis is likely to unfold.”
He added, “Russia’s actions took international commodity markets off guard, evidenced by the large price fluctuations witnessed today. Already strained markets are becoming further stretched as significant oil and gas volumes are now at risk.”
Rystad said the escalation immediately jeopardizes up to 1 million barrels of oil per day of crude supplies that transit through Ukraine and the Black Sea. Rystad noted however that the long-term disruptions could be far more significant. Kaieteur News understands that Rystad Energy’s simulations show that oil prices could surge to around US$130 per barrel, with consumers feeling the squeeze at the gas pump and in their power bills. Rystad said the reality is that significantly higher prices are on the horizon in Europe and overseas. Furthermore, Rystad said that a complete halt to gas exports from Russia is highly unlikely, but gas piped through Ukraine – which represents 8% of European supply – is very much at risk.
The analyst was keen to note that Russian gas accounts for over 30% of Europe’s demand, and other potential supply sources are inadequately prepared to bridge the gap. On the other side, he said Russian gas exports bring in more than US$300 million for the Kremlin each day – revenues they cannot afford to lose. He added that Germany’s suspension of the Nord Stream 2 pipeline further complicates matters and increases the pressure on the continent to look for other sources to replace those volumes. In conclusion, Rystad Energy said it is following the situation closely and will share regular updates on its views.
Prices surged
Meanwhile, the BBC reported Thursday that oil prices surged past $100 (£74) a barrel to hit their highest level for more than seven years after Russia launched an invasion of Ukraine. Global shares fell on worries of the possible impact of the conflict, but US tech stocks rebounded in late trading. Russia is the second biggest exporter of crude oil, and is also the world’s largest natural gas exporter. Brent crude eased from $105 to $98 a barrel, but not before UK petrol prices had hit another record high. The UK imports 6% of its crude oil and 5% of its gas from Russia, but there are concerns sanctions could constrict supplies and drive up prices worldwide. The price of UK natural gas futures soared nearly 60% on Thursday. UK consumers are already paying a high price for energy and fuel, with demand surging following the easing of COVID restrictions. Both the RAC and AA motoring groups said average petrol prices hit a record high of nearly 149.5p on Wednesday, with diesel at 152.83p.
The RAC said that if the oil price reached $110 a barrel, the average price of petrol could hit £1.55 a litre. If prices do get this high, it will “cause untold financial difficulties for many people who depend on their cars for getting to work and running their lives as it would sky rocket the cost of a full tank to £85”, said the RAC’s Simon Williams. Petrol price movements in the UK are mainly determined by the price of crude oil, and the exchange rate between the dollar and the pound, because crude oil is traded in dollars. The price of crude oil is up, and the pound is down against the dollar.
News of Russia’s actions also led to steep falls on global stock markets. In Europe, the UK’s FTSE 100 index fell more 3.9%, its biggest one-day fall since June 2020. Germany’s Dax index lost 4%. In the US, the Dow Jones fell nearly 2% in early trading but a late rally in the tech sector meant in ended 0.3% higher. The tech-heavy Nasdaq index climbed 3.3% and the S&P 500 closed trading up 1.5%.
Shares in Netflix and Microsoft were both up more than 5%, respectively. After talking with allies from the G7, US President Biden announced measures to impede Russia’s ability to do business in the world’s major currencies, along with sanctions against banks and state-owned companies. Wall Street which traded in the red at the start of the day on news of Russia’s invasion of Ukraine, hit session highs in the wake of Biden’s comments.
The Moscow Stock Exchange saw trading suspended briefly, but when it reopened, the index fell by more than a third. On the currency markets, the Rubles sank to a record low against the US dollar. The price of gold, which is considered a haven asset in times of uncertainty – jumped 3% to its highest price in more than a year.
Russ Mould, investment director at AJ Bell, said the oil price surge “was terrible news for businesses and consumers” because “it will serve to further stoke inflation”. “Not only will energy bills keep going up, but food prices look set to jump even higher. Ukraine and Russia are both big food suppliers and any disruption to supplies will force buyers to seek alternative sources, which could jack up prices.” The UK’s cost of living is rising at its fastest rate in 30 years, as energy, fuel and food prices continued to soar, squeezing household budgets. Meanwhile, Mr. Mould said the fall in the FTSE 100 “was bad news for the millions of savers and investors who have money in UK equities”.

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