Rashid Husain SyedThe global oil markets are far from stable.

Having entered a turbulent phase, the see-saw continues. After almost touching the US$130-a-barrel mark in early March, crude oil prices have registered a dramatic reversal, hovering around US$100 a barrel.

Early last week, crude prices were on a slippery slope. With some underlining issues, markets were heading back into a bearish mode. Supported by the unprecedented announcement of the release of about 240 million barrels of crude over the next six months – from the strategic petroleum reserves of International Energy Agency (IEA) member countries – and the emerging questions about the global demand growth, the markets appeared to be losing some momentum.

At mid-week, prices dropped below US$100 a barrel.

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Faced with political backlash, the administration of U.S President Joe Biden announced the release of one million barrels a day over the next six months to compensate for the forced loss of Russian crude from the markets.

The easing supply scenario resulted in downward price pressure. Markets adapted to the emerging realities. But by mid-week, driven by geopolitics, the markets began tightening again.

The most important factor impacting the crude markets is the question of how much Russian crude will be locked out and for how long?

With the Ukraine crisis far from over, there’s no obvious answer. The prospects of a resolution of the Ukraine crisis appeared dim when Russian President Vladimir Putin announced late last week that peace talks with Ukraine were at a dead-end. He stressed that Russia would continue with its “special military operation.” Oil prices immediately rallied above US$100 a barrel.

The ongoing crisis is impacting the global energy demand-supply balance. To what extent is still to be determined.

According to Bloomberg calculations, based on data from the Russian Energy Ministry, in the first six days of April Russian output dropped more than it has in almost two years, to about 10.52 million barrels a day. Other reports said Russian oil and gas condensate production fell below 10 million barrels a day (bpd), its lowest level since July 2020.

According to the Paris-based IEA, Western sanctions could reduce Russian exports by some three million bpd this quarter. The IEA said it expects Russian output to drop by 1.5 million bpd in April, growing close to three million bpd in May.

However, the IEA also lowered its expectations for worldwide demand and said it anticipated rising global production could offset output losses from Russia.

Others disagreed.

The Organization of Petroleum Exporting Countries (OPEC) is looking at things differently. “We could potentially see the loss of more than seven million barrels per day of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,” OPEC secretary general Mohammed Barkindo said. “Considering the current demand outlook, it would be nearly impossible (for OPEC) to replace a loss in volumes of this magnitude.”

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With summer driving season nearing and China easing COVID-19 lockdown measures in Shanghai and other cities, oil markets could be in for some more upheaval – at least in the shorter run.

Given the sanctions impeding its exports, Russia is endeavouring to find new buyers for its oil, natural gas and coal, Putin has said. And Energy Minister Nikolai Shulginov told the Russian news agency Interfax that the country was prepared to sell oil at almost any price to friendly nations.

This presents an opportunity to the import-dependent countries of China, India, Pakistan and others, despite political pressure from the United States.

The resurgence in the oil markets owes its origin to geopolitics, not fundamentals. The markets aren’t that tight. Ultimately, when the crisis in Ukraine ends and the geopolitical world stabilizes, oil markets could be in for another major reversal.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.


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