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Oil Prices
Dear Editor,
In March 2020, OPEC witnessed a stalemate between Russia and Saudi Arabia, two leading oil producers over the issue of production cut to effectively control crude oil prices on the global market. Of note, Russia refused to cut its production and the impasse caused a steep fall in oil prices coupled by the COVID-19 Pandemic and brinkmanship between the two oil giants, which appeared by complex geopolitical and geoeconomic factors.
Fast-track to 2022, the US Energy Information Administration (EIA) has raised its 2022 Brent Crude spot price to US$105.22 per barrel this year compare to its earlier forecast of US$82.87 per barrel. Unfortunately, as a result of Russia’s invasion of Ukraine and subsequent sanctions on Russia and other actions which created ‘propelled significant’ market uncertainties about the potential of oil supply disruptions caused oil prices to closed almost US$124 per barrel in the first week in March 2022.
The vast majority of Russia’s oil exports are purchased by Europe and China, which together account for 90 percent of the country’s export. Russia is the world’s biggest exporter of refined oil to the global markets and the second-largest exporter of crude oil behind Saudi Arabia exporting about 2.85 million barrels per day. Further, according to the International Energy Agency (IEA), Russia’s oil customers are varied, and outside of Europe, most like China and the US. Of recent, Russia has sold oil to India at a discounted price, making its export stronger in the wake of sanctions.
On the other hand, the sanctions on Russia’s oil seem to be ineffective in the short-run based on Russia’s global position on the oil market with its customers’ dependency and new oil trade deals.
Although, the EIA reduced Russia’s oil production in its forecast, it still expects global oil inventory levels will average around 500,000 barrels per day from the second quarter of 2022 up until the end of 2023 – being mutagenic with strong expectation to put downward pressure on crude oil prices. However, this forecast is conditional, if production disruptions – in Russia or other oil producing countries – are more than EIA’s forecast.
In conclusion, if the US really wants to squeeze the Russian oil production and supply on the global market and reduce other countries dependency on Russia’s oil then the US should be formative to remove its sanctions on Iran and Venezuela oil trade and let these countries increase production levels as a means to counteract any oil supplies shortfall on global market, regardless of their affiliation to Russia and the perceived political implications. Such a move will, in effect, bring down oil prices well under US$100 per barrel.
Truly yours,
Paul Ramrattan
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