The recent slump in oil prices does not reflect the actual risk of Russian supply disruption, a senior executive of Vitol has warned.
Brent crude dropped from close to $140 per barrel right after the start of the war in Ukraine to $104 per barrel last week as the United States and the International Energy Agency announced massive reserve releases. However, this would not be able to offset lost Russian barrels over the next few months, Bloomberg quoted Mike Muller, head of Vitol’s Asian operations, as saying.
“Oil feels cheaper than most would’ve predicted,” Muller said on a podcast produced by Gulf Intelligence. “Oil prices could be higher given the risk of disruption of supplies from Russia. But people are still lost figuring out those numbers.”
In the third quarter, Muller said, Russian oil and oil product exports could be down by between 1 and 3 million barrels daily, from 7.5 million barrels daily under normal circumstances.
Muller also noted that demand was going to continue to strengthen despite China’s recent dip because of the resurgence of the coronavirus.
“China will throw the kitchen sink at making sure the economy delivers,” Muller said. “We are going to see China put a massive effort into infrastructure spending and propping up the economy. You’re going to see a big outlay.”
At the same time, any additional supply from Iran will be slow in coming. This weekend, Iran’s foreign minister Hossein Amir-Abdollahian said the parties at the nuclear deal negotiating table were close to an agreement, adding, “We have passed on our proposals on the remaining issues to the American side through the EU senior negotiator, and now the ball is in US court.”
Oil started the week with a decline after the Houthi rebel group in Yemen and the Saudi-led coalition agreed to a truce that alleviated some Saudi oil supply concerns sparked last month by a string of Houthi attacks on Saudi oil targets.
By Irina Slav for Oilprice.com
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There could be three simple explanations to why crude oil prices eased and none of them has to do with the release of 180 million barrels from the Unite States’ Strategic Petroleum Reserve.
The first is that the Houthi rebel group in Yemen and the Saudi-led coalition agreed to a truce that alleviated some Saudi oil supply concerns sparked last month by a string of Houthi attacks on Saudi oil targets. The second reason is that there are indications that the Ukraine conflict is moving slowly towards more negotiations and rather than more fighting. And a third reason is a lockdown of the Shanghai area in China affecting some 62 million people and costing the economy a stunning $4.6 billion a month.
President Biden’s decision to release 180 million barrels of oil from the United States’ Strategic Petroleum Reserve (SPR) hasn’t had enough time to reach the global oil market to cause crude oil prices to fall.
Releasing more oil from the SPR isn’t going to fare better than previous releases vis-à-vis their impact on prices but may at least help slightly alleviate the tightness in the market.
At the same time, any additional supply from Iran will be slow in coming. Even if it does come, the maximum additional oil Iran could bring the global oil market wouldn’t exceed 650,000 barrels a day (b/d) being the difference between pre-sanctions and post-sanctions Iranian crude exports.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London