The crude oil quote has nearly been in free fall this week. The market was anticipating a possible deal between Ukraine and Russia. But as quickly as the way down was found, so quickly the price shot up again.
The price for Brent oil closed at $11 per barrel on Friday, March 112,67. However, a significant decline started at the beginning of this week. On Tuesday, March 15, the price fell below $100 per barrel for the first time this month. That decline continued, and on Wednesday, March 16, Brent oil even closed at $98,02 per barrel. However, on Thursday March 17, the price rose quickly again, ultimately reaching $106,02 per barrel. That is the strongest price increase in one trading day in the last sixteen months.
Price movements on the oil market have an almost direct link with developments in Ukraine. At the beginning of the week, Ukrainian President Zelensky reached out to Russia by openly no longer aspiring to NATO membership and Russian sources also called Ukraine's demands more realistic. However, the negotiations have not led to concrete results.
But the longer the war lasts, the more likely it is that more measures will be taken against Russia, is a common thought among analysts and traders. And... the more isolated Russia becomes, the less (easily) oil can be exported from the country. That thought has clearly had an effect on the price this week.
Additional sanctions
That this reasoning is not entirely unfounded became apparent on Friday, March 18. Japan has announced that it will impose additional sanctions against Russia, on top of previously imposed sanctions. Japan has now added fifteen Russian individuals and nine organizations to the list. In total, there are now 76 Russian individuals, seven banks and twelve companies banned from doing business in Japan. Japan still has an interest in oil and gas projects on Sakhalin Island. Shell and Exxon Mobile, among others, previously withdrew from some of those projects.
Geopolitical relations have not improved this week. Putin called pro-Western Russians 'scum and traitors' in a speech and compared the West to Nazi Germany. US President Biden called Putin a war criminal. According to experts, this does not help to bring about a speedy end to the conflict in Ukraine.
No production increase
In the meantime, OPEC is making no move to fill the gap created by the loss of Russian oil. The United Arab Emirates and Saudi Arabia are the only countries with sufficient spare capacity to increase oil production to the point where they are able to keep the price down. But producers don't like that. President Biden in particular is trying to get OPEC to move, but so far has received no response.
Russian oil may be boycotted by the West, but that does not mean that oil is no longer produced. And that oil has to go somewhere. Russia therefore offers a significant discount. This week it was announced that India has responded to this and China, which already purchases a relatively large amount of oil and gas from Russia, may also be sensitive to this.