Energy markets have had an incredible bull run over the past year or so. Over the past 24 months, prices have risen from negative territory to now almost $95 per barrel. With the prospect of coronavirus related lockdowns all but out of most traders’ memory, now there’s every reason to be bullish about the energy market instead. Going into this coming week, experts expect oil could jump to above $100 or more depending on how things settle over in Ukraine.
As most people know, the ongoing tensions between Russia and Ukraine have reached a boiling point. From an energy perspective, Russia remains the single largest energy commodity supplier to Europe, including both oil and natural gas. Even worldwide, Russia ranks as the globe’s third-largest oil producer, exporting over 5 million barrels of crude per day. Around 60% of its exports go to Europe, while the remaining 30% go to China.
With much of the continent relying on Russian exports, any disruptions due to a military conflict could easily leave the continent struggling. Winter also isn’t finished yet, and a single bad storm or cold spell across Europe could further price up prices. Supplies are already incredibly tight across the continent. In recent months, Russian natural gas exports into Europe have been running lower than normal as well.
“We are setting up for a period of turbulence. The threat is more pronounced when energy markets are tight,” said Jason Bordoff, founding director of Columbia University’s Global Energy Policy Center.
At the same time that all this is happening, global oil production is lagging behind. OPEC countries have promised to increase oil production back to pre-pandemic levels. However, that has still to happen yet. The group agreed to increase output by 400,000 barrels a day, but so far, the cartel remains over one million barrels per day below its planned target. Many in the market are now questioning whether OPC is even able to restore its oil production at all.
The only OPEC countries that seem to have significant amounts of spare capacity are the UAE and Saudi Arabia. Over here in America, U.S. frackers have set up more drilling rigs in an effort to cash in on these high oil prices.
Despite this, regular Americans have been feeling the effects of this limited oil supply, with gas prices rising to record highs in some places. President Biden has recently met with advisors on how to lower prices, with options including releasing more crude from the national reserves, as well as coming to a special agreement with OPEC.
No matter how you look at things, there’s every reason to be bullish right now on oil as prices continue their steady ascent. In the event that some sort of military action breaks out in Ukraine, expect oil prices to jump well above $100 per barrel. However, that’s still an unlikely probability, especially since so much of the Russian economy is reliant on its energy exports to balance its budget. The real winners of this situation, however, are oil producers, many of whom are reporting record profits right now as prices remain elevated.