Crude oil prices started the week with a drop of about one percent as traders were still watching what happens in Syria next and despite the announcement that Washington will impose new sanctions on Russia for its support of Syrian President Bashar Assad.
At the time of writing, Brent crude traded at US$71.87, down by 0.98 percent from Friday’s close, and West Texas Intermediate was down 0.85 percent to US$66.82 a barrel, after on Sunday the US Ambassador to the UN Nikki Haley said Washington would announce the third round of sanctions against Russia today.
Speaking on “face the Nation” on CBS, Haley said “Secretary Mnuchin will be announcing those on Monday if he hasn't already and they will go directly to any sort of companies that were dealing with equipment related to Assad and chemical weapons use. And so I think everyone is going to feel it at this point. I think everyone knows that we sent a strong message and our hope is that they listen to it.”
Perhaps market participants are waiting for the actual announcement before they decide whether it is time to panic or not, or perhaps the effect of any Syria-related news has lost its edge for oil prices after the strikes carried out by the U.S., the UK, and France over the weekend failed to spark what many worried would be World War Three. Related: U.S. Rig Count Climbs As Oil Rallies
Meanwhile, GE’s Baker Hughes added its own headwind for oil benchmarks, saying U.S. drillers installed seven more of these in the week to April 13, bringing the total to 815. That’s 132 more than this time last year, suggesting U.S. oil production will continue to rise, perhaps even faster, as this was the second consecutive week with rig additions.
Last week, the Energy Information Administration reported that production had hit another record, at 10.53 million bpd in the week to April 6, up from 10.46 million bpd a week earlier.
By Irina Slav for Oilprice.com
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New sanctions on Russia will have no effect whatsoever on oil prices since they will not hamper Russia’s ability to continue to export its crude oil and refined products.
Meanwhile, Russian crude oil exports are now priced and paid for in petro-yuans thus undermining the petrodollar. Moreover, the petro-yuan will help decrease significantly the effect of US sanctions as it provides a viable way for major oil exporters to circumvent the petrodollar system.
Russia and China have stepped up their alliance to a level where the Russian ruble is an acceptable tender at many places in China.
The global oil market has become indifferent to announcements by the EIA about increases in US oil production or rises in US rig numbers. Oil prices buoyed by a robust economy and fast-increasing global demand for oil will continue to rise despite these announcements.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London