The barrel of US crude jumped more than 11.5% yesterday and soared another 2% to $111 mark this morning, as the cruelty of the Ukrainian war pushes the US to ban the purchase of Russian oil, and to release – with its allies, circa 60 million barrels from their strategic reserves.
But the strategic reserves will help boost oil supply for only some time; it’s not a durable solution. Therefore, today’s OPEC meeting is critical.
So far, the cartel confirmed that they remain committed to the OPEC+ deal with Russia, and they are not expected to change their production boost plans despite the Ukrainian war. f that’s the case, we shall see the positive pressure on oil prices intensify above the $100 per barrel level, and we could see the barrel of US crude advance toward the $125/150 range.
That’s a big problem, globally, that could gather some reaction from the government heads, as Biden for example has been calling OPEC to increase production since months now.
What’s next?
It’s very difficult to predict what will happen, but at some point, OPEC countries may decide to let go of the OPEC+ alliance, if the Russian oil gets significantly banned. Russian oil is already trading with a significant discount to WTI and Brent crude, as refineries and trading houses are turning away from Russian crude purchases in fear and in preparation of future sanctions.
Exxon Mobil has finally announced to shut down production in Russia as well. The company said it will begin a phased withdrawal from the giant Sakhalin offshore oilfield that it has operated since 1995, saying that they ‘deplore Russia’s military action that violates the territorial integrity of Ukraine and endangers its people.’ TotalEnergies, which holds stake in Russia’s biggest LNG producers said, on the other hand, that it won’t get out of Russia for now, but they will stop investing in new projects. The announcement didn’t prevent the share price from falling further.
As a result, OPEC will be increasingly under a political pressure, as the Ukrainian war is becoming a global crisis, and the indirect implications are felt all across the world, particularly via the surging oil and commodity prices, and the world leaders will put all their weight behind it.
Fingers crossed for today’s OPEC+ decision, but again, don’t get your expectations up; OPEC won’t magically decide to come to the rescue.
