| 23 February 2024, Friday |

Oil rallies to 7-year high as Opec+ meet and IEA warns of energy security threat

When the Ukraine-Russia situation worsens, oil prices rose to a seven-year high as Opec+ producers met on Wednesday and the International Energy Agency (IEA) warned of an energy security danger.

At 9.31 a.m. UAE time on Tuesday, Brent, the worldwide benchmark for two-thirds of the world’s oil, was 4.80% higher at $110.01 per barrel. The US crude benchmark, West Texas Intermediate, was up 4.84 percent at $108.42 per barrel.

As the Russia-Ukraine situation worsens, the International Energy Agency (IEA) agreed on Tuesday to release 60 million barrels of oil from emergency inventories to help stabilize energy markets.

Russia’s military offensive came amid “already tight global oil markets, heightened price volatility, commercial stockpiles at their lowest level since 2014, and a limited ability of producers to offer extra supply in the medium term,” according to the Paris-based agency.

“The situation on the energy markets is quite serious and necessitates our undivided attention.” “Global energy security is in jeopardy, putting the world economy at risk at a critical juncture in its recovery,” said Faith Birol, executive director of the International Energy Agency.

Russia, one of the world’s major crude producers, has been hit by a barrage of sanctions aimed at its economy and financial sector, but not its energy or commodity sectors.

According to the 2021 BP Statistical Review of World Energy, the country produced roughly 10.2 million bpd of crude oil and natural gas condensate in 2020, ranking second after the United States and third after Saudi Arabia. Around 60% of Russia’s oil exports travel to Europe, with the remaining 20% going to China.

According to Ehsan Khoman, head of emerging markets research at MUFG Bank, the IEA oil release and extra Opec+ barrels “will not derail the robust bull oil market.”

“The immediate rally in oil prices is a testament that markets are already looking through the IEA announcement and remain squarely focused on the extreme state of shortage oil markets are in today,” Mr Khoman said. “Super backwardation levels with Brent crude prompt timespreads currently trading $5 a barrel above the next month – an unprecedented level that indicates trades are paying huge premiums to secure more immediate supply.”

The Opec+, a 23-member oil production group, will consider providing more crude to the market. Despite growing fears about a potential interruption to global energy flows in an already tight market, the group is poised to stick to its guns and supply extra 400,000 barrels of crude per day in April.

Opec Secretary General Mohammad Barkindo reaffirmed the group’s responsibility in delivering stability to the oil markets during a virtual meeting of the bloc’s Joint Technical Committee on Tuesday.

“No matter what problems we confront, our effective and proven… framework will continue to be the modus operandi for our shared success and help us move closer to realizing our mutual objectives, step by step and day by day,” he said. “This nimble, methodical strategy will pay off once more.”
“In the days and weeks ahead, we will continue to closely examine these events,” Mr Barkindo added.

Nonetheless, according to Jeffrey Halley, senior market analyst at Oanda, the “uncomfortable fact is that Opec compliance is well above 100% anyway, implying that they are pumping as much as they can, so even a theoretically larger increase would not materially impact markets for more than the short term.”

“As the facts of the Ukraine-Russia crisis resurface, I expect to maintain my prediction that Brent crude will reach $120 per barrel and trade towards $130 per barrel. That will be the price of the international community’s determination to damage Russia’s economy.”

According to Opec’s latest monthly oil market report, global oil demand is expected to climb by 4.2 million bpd this year.

  • The National News