(Finance and Economics) When will the continued high international oil prices return to rationality?
China News Agency, Beijing, May 9 (Liu Wenwen) With the intensification of the conflict between Russia and Ukraine, the announcement of the EU's sanctions and ban on Russian crude oil has made market worries continue, and international oil prices have ushered in a rise again under the balance of supply and demand.
Data show that international oil prices once soared as high as $110 a barrel.
In the latest session, U.S. WTI crude oil closed up at $109.77 a barrel, while London’s Brent crude closed up at $112.39 a barrel.
Many experts have pointed out that there are three major factors for the recent upward trend in oil prices.
First, the EU is considering an embargo on Russian oil to boost international oil prices.
The European Commission recently submitted a draft of the sixth round of sanctions against Russia, and the EU will completely ban the import of Russian oil by the end of this year.
In addition, the G7 leaders issued a statement after a video meeting on the 8th, saying that they will gradually reduce their dependence on Russian energy, including phasing out or banning the import of Russian oil.
For the EU, it is quite difficult to find enough alternative sources from the already tight international crude oil market in a short period of time.
Although the permanent representatives of EU member states failed to reach an agreement on a new round of sanctions on the same day, as more and more countries announced the ban on Russian oil, the global energy supply gap will further expand.
Second, on the supply side, the Western sanctions against Russia have continued to decline Russia’s oil supply and exports, and the tension in international crude oil supply has intensified.
Previously, the International Energy Agency (IEA) expected Russian supply losses to be 1.5 million barrels per day and 3 million barrels per day in April and May, respectively.
Despite this, OPEC still ignored Western countries' calls to expand production and insisted on a small production increase plan, saying that it could not "take the blame" for Russia's supply disruption.
However, analysts believe that because most OPEC members are limited by production capacity, it may be difficult to achieve this target plan.
In the future, the supply gap in the crude oil market will further expand, driving up oil prices.
Third, in terms of inventories, the United States will launch a plan to replenish emergency oil reserves, and plans to purchase 60 million barrels of crude oil this fall to replenish the continuously depleted Strategic Petroleum Reserve (SPR), resulting in stronger international crude oil prices.
What are the negative factors for international oil prices?
"At present, many European countries have proposed plans to gradually reduce their dependence on Russian oil, which has prompted European countries to diversify their sources of oil imports," said Chen Shuxian, a researcher at Cinda Securities.
To this end, the market expects the rapid return of Iranian crude oil.
The EU is working hard to break the "stalemate" in the Iran nuclear talks.
The EU Coordinator and Deputy Secretary-General of the EU External Action Agency Mora will visit Iran on the 10th to advance negotiations on the comprehensive agreement on the Iranian nuclear issue.
If the Iranian nuclear talks can go ahead smoothly, the return of Iranian oil to the market will greatly ease the oil supply problem, or it may curb the upward trend of oil prices.
In response to the global oil shortage during the special period of the Russian-Ukrainian conflict, the United States and other members of the IEA have previously launched the largest dump of reserves in history, and will continue to sell a total of 240 million barrels of SPR to the market.
What is the current effect of dumping and storage, and can it stabilize oil prices?
Lin Boqiang, dean of the China Energy Policy Research Institute of Xiamen University, told China News Agency that the market will react immediately to the dumping of reserves, which does help to stabilize oil prices in the short term, but obviously cannot form a long-term impact to reverse the situation.
This round of oil prices continues to rise, when will it return to rationality?
Lin Boqiang analyzed that this round of international oil price rise started last year, mainly due to the shortage of supply caused by the impact of the epidemic on the industrial chain, resulting in an imbalance between supply and demand and a rise in oil prices.
With the gradual repair of the industrial chain, the conflict between Russia and Ukraine has taken a step forward, "and this is much bigger than the impact of the epidemic last year, and it will last longer."
The current international oil price has risen to $110 a barrel. In Lin Boqiang's view, oil prices will remain high above $100 for a long time.
"The conflict between Russia and Ukraine will lead to a switch in the energy market, and the flow of global trade will be completely changed. To this end, the EU must gradually get rid of Russian oil, and Russia must also find new partners, but this process is not easy." Lin Boqiang admitted frankly.
He further analyzed that the premise of cooperation between buyers and sellers is to have infrastructure support, and infrastructure investment is not a small amount, and involves cooperation negotiations, engineering construction, etc., so it is not easy to establish a partnership.
Lin Boqiang said that this market switch may lead to two to three years of supply and demand chaos, and oil prices may remain high for several consecutive years.
"This is not short-term. In the past, the time for oil prices to fall from a high level was very short. This time is different." (End)