Market tension: Brent oil rose to $96 per barrel amid the situation around Ukraine

On Monday, February 14, trading on the global energy market is accompanied by noticeable fluctuations in oil prices.

In the morning on the ICE exchange in London, the cost of raw materials of the benchmark Brent brand rose by 1.7% to $96.07 per barrel.

The value was the highest since October 2014.

However, already in the middle of the day, the quotes began to decline and at the moment fell to $93.56 per barrel.

Note that since the beginning of 2022, oil on the international market has risen in price by more than 20%.

Experts say that the main reason for the observed dynamics is the growing shortage of energy resources in the world.

“The level of oil production remains insufficient, and at the same time we are seeing an increase in geopolitical risks.

In such a situation, prices are sensitive to any news related to the topic of limiting the supply of oil on the market, ”said Alexander Potavin, an analyst at FG Finam, to RT.

According to him, market participants are alarmed by the high degree of tension in relations between Russia and the West.

Thus, representatives of the United States and Europe continue to accuse Moscow of preparing a "military invasion" of Ukraine.

Moreover, at the end of last week, a number of states began to call on their citizens to leave the territory of Ukraine and announced plans to transfer or reduce the staff of their diplomatic missions.

At the moment, such measures have already been announced by about 40 countries.

“While in 2014 and in subsequent years, Russian oil companies have always fully met their contractual export obligations, at present, consumers in Europe prefer to replenish their stocks of raw materials in case of possible supply disruptions.

This, in turn, further contributes to higher prices, ”Valery Vaysberg, director of the analytical department of Region Investment Company, explained in an interview with RT.

It is noteworthy that in the current conditions, European gas prices are also growing rapidly.

So, during Monday trading, the cost of fuel at the TTF hub in the Netherlands rose by almost 14% - up to €88 per MWh, or about $1,024 per 1,000 cubic meters.

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In addition, the uncertainty regarding the Iranian nuclear deal has an impact on the price of oil, Alexander Potavin believes.

It was previously assumed that in the event of successful negotiations and the lifting of sanctions against Iran, the Islamic Republic would be able to significantly increase oil production, but this still did not happen.

Recall that back in 2015, Iran, the United States, Russia, China, France, Great Britain and Germany approved the Joint Comprehensive Plan of Action (JCPOA).

The essence of the document was to limit the Iranian nuclear program in exchange for the lifting of sanctions by Washington, the EU and the UN Security Council.

In 2018, at the initiative of Donald Trump, the United States withdrew from the treaty and imposed new sanctions against Iran.

In particular, the restrictions affected the energy sector of the Islamic Republic - the then current US administration planned to reduce Tehran's income from the sale of oil to zero.

With the coming to power in the United States of Joe Biden, Washington returned to the negotiations.

However, no significant progress has been made.

“Iranian officials have said that if the restrictions are lifted, the country will increase production by 1 million barrels per day within a few months.

This could put serious pressure on prices.

It is already mid-February, and there is no progress yet from negotiations between Tehran and Washington.

Iran says that returning to the conditions of 2015 is becoming increasingly difficult, as Western countries are only pretending to come up with new initiatives,” Alexander Potavin said.

Scarcity effect

Meanwhile, global fuel consumption continues to grow as the global economy recovers from the effects of the pandemic.

According to the OPEC forecast, in 2022, global oil demand will exceed the pre-crisis 2019 levels and amount to 100.8 million barrels per day.

Under these conditions, large oil exporting countries are trying to increase hydrocarbon production.

So, in early February, the participants in the OPEC + deal agreed to increase the production of raw materials from March by an additional 400 thousand barrels per day.

However, current volumes are still not enough to cover the global shortage of raw materials, analysts are sure.

“The ability of the OPEC+ countries to increase production following the growth in consumption remains limited so far.

As a result, we see real undersupplies of oil to the global market,” Alexander Potavin emphasized.

Recall that the OPEC + agreement includes 23 oil-producing countries, including Russia.

As part of the deal, the states jointly control the production of raw materials to achieve a balance between supply and demand in the global hydrocarbon market.

Such a policy should keep oil prices from sharp collapses.

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According to experts, in the near future, the dynamics of oil prices will continue to largely depend on the geopolitical situation.

Experts interviewed by RT do not exclude the possibility of an increase in the price of raw materials to $ 100 per barrel.

At the same time, analysts at the American investment bank JP Morgan admit the possibility of even greater growth in quotations.

“Even in the best-case scenario, which implies a de-escalation of tensions between Russia and Ukraine, oil prices are likely to fall only to $84 per barrel.

At the same time, any interruptions in oil supplies from Russia, given the low level of reserve capacity in other regions, could easily push prices up to $120 per barrel.

And the halving of Russian oil exports is likely to push Brent crude prices to $150 per barrel,” the bank said in a study.

Budget Bonus

In the spring, certain pressure on the price of oil may be exerted by the actions of the US Federal Reserve, Valery Vaysberg believes.

Against the backdrop of accelerating inflation in the United States, the Fed plans to raise interest rates.

Such a decision, in turn, will lead to a strengthening of the dollar on the international market and a decrease in the cost of raw materials, the expert noted.

“The tightening of monetary policy in the US is expected in March.

If the Fed sends a very strong signal to the market, we could see oil prices fall,” Weisberg added.

At the same time, oil quotes will continue to remain at comfortable levels for Russia, analysts say.

It should be noted that for 2022 the base price of oil is set at $44.2 per barrel in the Russian budget.

As part of the budget rule, if the cost of raw materials falls below this mark, the lost oil and gas revenues are compensated at the expense of the National Welfare Fund (NWF).

If prices on the market rise above this indicator, the excess profits, on the contrary, are sent to the National Welfare Fund.

According to the Ministry of Finance, in January 2022 alone, the volume of the NWF increased by 44.9 billion rubles and reached 13.6 trillion rubles.

According to experts, taking into account the observed dynamics of oil prices, the indicator will continue to increase.

“The currency purchased for additional oil and gas revenues in 2021 will be credited to the NWF in 2022.

Judging by the strong growth in oil prices at the beginning of this year, the excess revenues of the Russian budget from the sale of hydrocarbon raw materials may be higher by another 10-15%,” Alexander Potavin concluded.