The world’s largest independent crude trader Vitol Group feels that the global oil market will tighten further with disruption of Russian oil flow and oil producers like Libya experiencing supply crunch. The impact can push the prices higher after crude oil crossed $115 a barrel post the Russian invasion of Ukraine.
The surging oil prices
As per Bloomberg News, Vitol’s Asia Head, Mike Muller, in a podcast produced by Dubai-based publisher and consultant Gulf intelligence, said on Sunday that there are more twists and turns in the offing. According to him, while the world is already factoring in the price, knowing there won’t be severe takers of Russian oil in the western hemisphere, everything is not yet included in the pricing.
The views of Muller are echoed by many commodities hedge funds and Wall Street banks, including Goldman Sachs Inc., which feels that oil could reach $150 in the next three months. The market, according to Muller, will see a bullish pattern where traders will rush to secure supplies resulting in the near-term futures being more expensive. The one-month spread is at its peak for Brent in the last decade.
Crude surged in 2021 after economies rebounded globally after the pandemic and energy demand increased. This year it has increased by another 50%.
U.S. and European sanctions have excluded energy exports from Russia. However, traders, insurers, shippers, and banks are skeptical about exposure to Russian barrels. Russia, which exports 5 million barrels of crude every day, saw massive discounts on its Urals grade crude last week.
Muller says that though Russian oil purchase is not illegal, purchasing them is getting tightened.
Shell Plc bought a cargo of Urals on Friday, and more companies are expected to follow suit; otherwise, countries like Germany can face shortages. Ukraine criticized Shell, but the company said that they would donate from the profits made in Russian business to help agencies. According to Muller, other Oil companies will probably negotiate with governments to get the go-ahead signal to buy Russian oil.
OPEC and its cartel have so far resisted calls U.S. and other importers to increase production, but this could change if oil prices continue to rise. The 23-nation group led by Saudi Arabia and Russia gradually raised output after record cuts during the pandemic.
Muller says that temptation will increase the output as managing inventories is no longer the theme today as during Covid. At some point, the producers will see the Covid response in 2020 as history, and now they will focus on the present-day market fundamentals.
