The oil market remains highly volatile and made significant gains last week. However, there is one important difference with, for example, the natural gas or wheat market: no absolute records have been broken yet. The situation is different for petrol and diesel prices, which are reaching new heights.
Brent oil prices have risen steadily since the Russian invasion, reaching a peak of $114,59 per barrel on Wednesday, March 2. On Thursday, March 3, the price dropped to a closing price of $110,72 per barrel. However, that correction is short-lived and while writing this article Brent0 oil is already trading at over $113 per barrel. Oil is therefore well priced - make no mistake about that - but is not yet at the prices we saw from 2011 to 2013. Not to mention the record from 2008, which stands at $146,08 per barrel.
That raises the question: can the oil price rise further? First of all, analysts are cautious about making claims. Virtually no one had anticipated the large-scale Russian invasion, nor the attacks on the raw material and energy markets. The current price partly reflects concerns about the disruptive effect of the war on trade and oil transport. However, 'but' aspects are priced into the quotation, for example speculators who want to profit from volatility in the market or investors who are looking for protection against inflation for cash.
Long term vision
If we look more broadly, we can observe a trend. The major oil companies, with projects in Russia, are withdrawing from that country. This will most likely affect production capacity. Also, when oil prices are well above $60 per barrel - which is the unwritten lower limit for shale oil production - most companies are reluctant to invest in new oil wells. This was confirmed this week by Chevron in a message to shareholders. Higher returns on investment and lower CO2 emissions are central, it reported. Chevron is pursuing organic growth for exploration and extraction.
OPEC+ is not adapting its strategy to current market developments. The planned production increase is being initiated, but not increased further. The participation of Russia - along with a number of other non-OPEC members - does not appear to be in question. The cartel has been reasonably successful in controlling oil prices last year. Saudi Arabia and Russia are the producers that have sufficient capacity to significantly scale up or down production.
Diesel price explodes
Crude oil has risen in price very quickly, but diesel and petrol have risen even faster. The diesel price rose from €138 per 100 liters on Monday, February 28 to €158,88 per 100 liters on Thursday, March 3. That is an unprecedentedly strong increase in just a few days. Although the price has dropped slightly on Friday, March 3, it is still extremely high at €155,51. The Netherlands is therefore one of the most expensive countries to refuel in the world.
Gas station owners and intermediaries often give discounts on the recommended prices published by the refineries. In practice, the high recommended prices are usually slightly lower. But it remains striking that, relatively speaking, fuel is rising so much faster than the raw material from which it is made. Of course, refining becomes more expensive due to inflation and higher safety and environmental requirements. Nevertheless, most oil companies have presented excellent annual figures in recent weeks and as long as they do not notice a drop in demand, they will probably not tinker with their margins. The state has also neatly indexed fuel taxes for inflation as of January 1.