What’s ahead for energy oil prices now that Russia has invaded Ukraine?
As the 50th anniversary of the 1973 global oil crisis approaches, international energy markets and the global economy are poised to experience a similar shock. Since Russia’s invasion on Ukraine on February 24, crude oil prices have risen twice as high as $105 per barrel, a level last seen in 2014. And it’s possible that things will only grow worse from here. Even if the present sanctions against Russia do not specifically target the energy trade, sanctions against banks and other businesses would stymie Russia’s oil, natural gas, and coal exports, disrupting global energy markets. Furthermore, the dangers for oil tankers going through the Black Sea will restrict the amount of oil reaching global markets, especially non-Russian producers such as Kazakhstan.
The reduction in Russian oil and natural gas supplies to markets will have spillover effects, raising coal and liquefied natural gas (LNG) prices even higher and adding to inflation.
Russia is one of the world’s largest oil and gas producers, and any disruptions are likely to have a significant influence on pricing. JPMorgan researchers predicted in February that delays in Russian oil flows may send oil prices above $120 per barrel. (To put things in perspective, oil was around $60 per barrel a year ago, and it started 2020 in the $70s and $80s.) Oil has already surpassed $100 a barrel for the first time since 2014, though it has since fallen back.
Russia Has All The Advantage
“The fear is that if Russia feels backed into a position, they will curtail oil exports,” said Patrick De Haan, head of petroleum analysis at GasBuddy. He pointed out that last November, when Germany postponed approval of the Nord Stream 2 project from Russia to Europe, Russia delayed natural gas shipments. “Who knows?” says the speaker. “Perhaps Russia will do it again with oil,” he speculated. “That’s a nightmarish scenario, but it’s a possibility.”
Americans are set for a rocky ride, already contending with high gas prices and irritated by rising home heating costs. Gas costs are important not only for consumers filling up their automobiles’ tanks, but also for shipping and transportation. The issue could also result in higher diesel and jet fuel prices for flights. “The inflation machine isn’t going to stop,” De Haan predicted.
According to AAA, the national average price of gas is $3.54 per gallon, up from $2.66 a year ago. That figure is expected to rise even more as the summer months approach, when more people will be on the road.
According to De Haan, President Joe Biden has committed to attempt to shield Americans from a surge in gas costs, but his choices are limited, if any at all. “The president has implied that he has it, that he’ll do everything he can,” he added. “But he doesn’t have anything else in the closet to do.” A new nuclear deal with Iran could help, but it’s no silver bullet, and it’s not obvious that it’ll happen anytime soon. “In terms of oil supply, it’s not Russia.”
Increased energy prices could stifle economic growth. People and businesses may be less willing to spend on other things as a result of having to spend more on oil and gas, which could reduce GDP.