With a price of $113 per barrel of Brent crude, the worldwide benchmark for oil prices has reached its highest level since June of last year.
As a result of Russia’s invasion of Ukraine and the resulting increased shipping and payment issues, traders are finding it impossible to export Russian oil, even at a discount. Gas prices have also more than doubled, which may have an impact on energy expenses.
According to Energy Aspects, a research agency located in the United Kingdom, about 70% of Russian crude oil exports are not being purchased by a third party. When Trafigura made an unprecedented offer of $18.60 per barrel below the market rate for Brent crude oil on Tuesday, it was unable to find a customer ready to assume the risk of purchasing the shipment.
According to Amrita Sen, one of the firm’s founding partners, buyers are anxious that they will be in violation of Western sanctions, and “lawyers are poring over the language” of the new regulations.
According to the RAC, if the current high oil price is maintained, the cost of filling up a car in the United Kingdom will rise along with it. “The sudden $10 increase in the price of oil is likely to push the average price of petrol and diesel closer to 155p a liter and 160p a liter, particularly as it appears that this price increase is not simply a market blip caused by the United States and its allies deciding to draw on the strategic oil reserve.
“If oil remains at this level, the journey to an average unleaded price of 155p may be far too soon,” said Simon Williams, a spokesman for the RAC’s fuel department.
According to the RAC, the average price of gasoline on forecourts across the United Kingdom on Tuesday was 151.6p per litre.
Cap on the price of energy
Household gas and electricity bills are expected to rise after the annual energy price cap is raised to £1,971 in April. However, according to one energy analyst, the rise in wholesale prices as a result of the conflict in Ukraine could result in the price cap being raised to £3,000 by the end of the year.
“Wholesale prices account for between 40 and 50 percent of residential expenditures,” according to David Cox, an independent energy expert. “If these high prices continue to hover around 400p per therm, we may see the price cap rise to as much as £3,000 per year, which is frightening.”
As a result of the volatility in European wholesale natural gas prices, energy analysts at Cornwall Insights estimated that the energy price cap will rise to above £2,900 in October this year.
Increasing crude and commodities prices aided the London stock market’s recovery from its recent slump in global markets, with commodity-linked corporate share values jumping as the Ukraine crisis stoked fears of supply shortages.
The FTSE 100 finished the day up 1.36 percent, helped by gains in Shell and BP shares.
On Wall Street, the Dow Jones Industrial Average, the Nasdaq Composite Index, and the S&P 500 Index all opened trading higher and were up between 1.6 percent and 1.9 percent at the close of business.
The price of US oil, known as West Texas Intermediate crude, increased to over $109.78 a barrel in the meantime.
Despite the fact that oil and gas are still flowing from Russia, there is widespread anxiety that the situation may change, either as a result of further tightening of sanctions or as a result of Russia itself choosing to restrict supplies. As a result, prices are increasing.
The decision by members of the International Energy Agency to unleash 60 million barrels of emergency oil reserves has done little to alleviate the current crisis. In fact, comments made by the chairman of the organization, who stated that global energy security is in jeopardy, have heightened traders’ anxiety even further.
During this time, wholesale gas prices in the United Kingdom and Europe have crept dangerously near to the record highs reached in December. Europe receives 40% of its natural gas from Russia, and there are serious fears about what would happen if the country’s gas supply were to be cut off.
At the present, high oil prices are working in Russia’s favor, since the country is making billions of dollars at a time when the country’s economy is under pressure. Even if this makes it unlikely that Moscow will reduce supplies, nothing can be ruled out completely.
In the meantime, if European nations were to tighten their grip on oil and gas imports, the impact of their sanctions would be increased by orders of magnitude. However, it would also have a significant negative impact on the economies of those countries.
The International Energy Agency (IEA) member countries, led by the United States, agreed yesterday to release 60 million barrels of emergency reserves, although the move appeared to have had only a minor impact on oil prices.
According to Goldman Sachs analysts, selling the emergency oil stockpiles will not be enough to make up for the supply shortage created by Russia’s invasion of Ukraine, nor will it prevent prices from rising even more.
Russ Mould, investment director at AJ Bell, stated that the measure would not “make any sustained effect” to the stock market.
“Russia has a sixth of the world’s natural gas reserves and a tenth of the world’s oil reserves. Industrial customers, as well as financial speculators, will be paying close attention to those figures and where the supply will be channelled in the future.
“The West continues to purchase Russian supplies, and Russia continues to deliver them, but this might change if ties worsen more,” Mr Mould continued.
Approximately 8% of the world’s oil supply comes from Russia, according to official figures.
Following a meeting on Wednesday, the Organization of the Petroleum Exporting Countries (OPEC), Russia, and their allies, collectively known as OPEC+, agreed to maintain their current policy of raising production by 400,000 barrels per day in April.
Because of Russia’s invasion of Ukraine, ExxonMobil announced on Tuesday that it will sell out its shares in the country’s oil and natural gas businesses. Shell and BP have also made announcements along the same lines.