Uncertainty continues to characterise the global energy market. Russia’s attack on Ukraine shows no sign of ending anytime soon. This has implications for the global oil and gas market.
Following US President Biden’s unprecedented statement that 180 million barrels of oil would be released over the next six months (May to October), Brent and WTI prices plunged by more than 10 percent last week to trade below the psychological $ 100 a barrel.
Experts assert that the US decision to release oil was a desperate attempt to rein in the oil market. The US administration is urging oil producing companies to accelerate production. This is, of course, seen as a U-turn of Biden’s policy.
Despite this, crude prices have once again climbed on Monday morning to $105 and $100 a barrel, respectively, for Brent and WTI.
Europe reluctant to stop imports
Russia is facing stringent sanctions from the West, but the European Union is extremely reluctant to ban Russian oil and gas import as there are few alternatives in the short term. Any precipitate action by Europe will likely result in serious economic consequences for the continent from an energy security perspective.
Data from EU suggest that in the first quarter the fundamental tightness in the gas market eased somewhat despite significantly lower import of gas from Russia. Yet, EU cannot afford to abruptly stop imports from Russia as it would adversely affect the manufacturing sector.
The US decision to release one million barrels a day over the next six months has encouraged member countries of the International Energy Agency. Many are expected to follow suit. This in effect would mean the oil market would no longer be under-supplied in the second and third quarter of the year.
At the same time, OPEC members are producing less than agreed. Production in Angola and Nigeria fell short of the target. Some observers assert, even Saudi Arabia and Iraq could have produced more but did not.
All this is keeping the world energy market in a state of flux. But in the bourses the signs are unmistakable. Speculators are gradually reducing their long position as many fear that further bullish bets can go awry.
Import-dependent India continues to buy Russian oil. India has already received supplies for about four days and more is expected to follow. This has seemingly caused the discount on Urals vis-à-vis Brent to drop to $20 a barrel from the previous discount of over $30 a barrel.
(The author is a policy commentator and commodities market specialist. Views are personal)