Oil nears $120 as EU mulls Russian crude ban
Oil prices have rebounded towards $120 a barrel as the EU considers an embargo on imports of Russian crude days after facilities in Saudi Arabia were attacked by Houthi rebels from Yemen, raising the risk of major disruptions.
Brent, the global benchmark for two-thirds of the world’s oil, rose 3.18%, trading at $119.3 a barrel as of 9:56 a.m. Tuesday, while West Texas Intermediate, the gauge that tracks crude US, was 2.48% higher at $114.9 a barrel. rollover at 9:50 a.m.
“Geopolitical risks remain high and that has made it a one-way trade for oil prices,” said Edward Moya, senior market analyst at Oanda. “Oil will remain a volatile trade, but it appears energy traders are increasingly confident that supply shortages are imminent.”
European leaders are considering imposing an oil embargo on Russia when they meet US President Joe Biden this week to discuss broader punitive measures in response to Moscow’s military offensive in Ukraine. The United States announced this month that it would ban imports of crude, gas and coal from Russia, while the United Kingdom would phase out imports of Russian oil over the course of the year.
“There is no unanimity so far from the EU on the decision to completely cut Russian crude flows, but the market could see this as a possibility,” said Shady Elborno, head of macro strategy at Emirates NBD. in a note on Tuesday.
Russia is the world’s second largest energy exporter. It accounts for around 10% of global energy production, including 17% of its natural gas and 12% of its oil. It provides around 40% of European gas, while Russian crude accounts for around 3% of US oil imports, or around 200,000 barrels per day. Russian imports account for 8% of total UK oil demand.
The Saudi-led military coalition said on Sunday that Yemen’s Iran-backed Houthi rebels had launched attacks on energy units, including an Aramco liquefied gas plant in the Red Sea port of Yanbu, a oil storage plant in Jeddah, an Aramco oil terminal in the south. border town of Jizan, as well as the facilities of Yanbu Aramco Sinopec Refining Company.
No casualties were reported in the attacks, but the kingdom’s energy ministry said there was a temporary drop in production at the Yanbu refinery, which produces 400,000 barrels of oil a day.
The kingdom has said it will not take responsibility for crude supply shortages in global markets following attacks on its energy infrastructure.
Saudi Arabia is OPEC’s largest oil producer and the world’s largest crude exporter. With Russia, he leads the alliance of 23 OPEC+ oil producers.
For several months, Opec+ has worked to bring back 5.8 million bpd of production cuts, and an additional 400,000 bpd expected in April, to restore a sharply reduced supply after the start of the Covid-19 pandemic in 2020. The producer alliance achieved a historic reduction of 9.7 million bpd between May 2020 and July last year.
The Russian-Ukrainian crisis led to higher oil prices, which exacerbated inflationary pressures on the global economy. The International Monetary Fund and other organizations have warned that the conflict will affect global growth this year, increase poverty and disrupt supply chains.
The outlook for global gross domestic product has “significantly deteriorated”, prompting Fitch Ratings to cut its forecast by 0.7 percentage points to 3.5% in 2022, as oil price growth slows. energy and the faster-than-expected pace of interest rate hikes in the United States. . The IMF is expected to lower its global growth forecast as Russia’s escalating war in Ukraine is expected to seriously shake business and consumer confidence, forcing global trade to contract this year.
The fund has already lowered its global growth projection for 2022 to 4.4%. January’s estimate was half a percentage point lower than its October 2021 projection of an economic slowdown in the United States and China amid rising inflation and rising oil prices. energy.
The war could reduce global gross domestic product by up to 1% by 2023, or about $1 trillion, and add up to 3% to global inflation in 2022 and about 2 percentage points in 2023, according to the National Institute for Economic and Social Research.
Rising inflation is hitting the post-pandemic Covid-19 recovery and the Russian-Ukrainian conflict is threatening global energy supplies, driving up oil prices, Fitch said.
Oil prices hit a 14-year high this month, hitting nearly $140 a barrel, while transport, commodity and food prices surged.
“Inflation challenges and supply shocks could weigh much more heavily on global GDP growth if they lead to much more abrupt Fed tightening, push oil prices to $150 a barrel for a period prolonged and were associated with widespread energy rationing in Europe,” Fitch Ratings said. .
On Monday, Federal Reserve Chairman Jerome Powell said the U.S. central bank could, if necessary, use larger than usual interest rate hikes to contain inflation. Powell said further Fed tightening could begin in May, with the central bank assuming less accommodative monetary policy to reduce pressure on the labor market and help stabilize inflation.
“Global inflation is back in full force after an absence of at least two decades. It’s starting to look like a moment of regime change in inflation,” said Brian Coulton, chief economist at Fitch Ratings.
Inflation in the United States, which hit a 40-year high of 7.9% in February, is expected to peak at 9% and average 7% this year, according to the rating agency. Eurozone inflation will average 5% in 2022 due to rising gas prices in the EU.
The rating agency expects a total of seven rate hikes in 2022 by the US central bank.
Updated: March 22, 2022, 06:21