The oil market remains highly volatile. This week it was economic growth expectations that left their mark on the market. But Russia also continues to occupy the minds of traders. A possible European boycott of Russian oil could have unpleasant consequences, especially for the production of diesel.
The quotation for Brent crude oil reached $18 per barrel on Monday, April 112,70, the highest price in more than three weeks. However, this increase quickly came to an end. On Wednesday, April 20, the price was again at $107,03 per barrel. After a small rebound, the price is today (April 22) at $106,82 per barrel. The market remains quite volatile, but the price jumps last week were less significant than we have seen in recent months. The oil price remains at a significantly higher level than before the Russian attack on Ukraine.
Development of world economy
The main cause of the decline in oil prices, according to analysts, is the development of the global economy. The International Monetary Fund (IMF) lowered growth expectations by 0,8 percentage points. In addition to a humanitarian crisis, the war in Ukraine is causing economic damage and slowing global economic growth. For example, prices for energy, grains and oilseeds are rising because they can no longer be exported as a direct result of war or because these products are partly covered by Western sanctions.
Gross domestic product (GDP) in Ukraine will fall by 35% this year, according to the IMF. Russia's GDP is reportedly down 8,5%. For 2023, the organization predicts a further contraction in Russia: -17%. Higher energy prices, a lack of confidence and turmoil in financial markets could lower economic growth expectations by another two percentage points, according to Pierre-Olivier Gourinchas, an economist at the IMF.
By the way, the price for Brent oil is not only determined by demand. On the supply side, the members of the Opec cartel are having difficulty filling the established production quotas. Agreements have been made within the cartel on how production can gradually be restored to pre-corona pandemic levels, without the price falling sharply. Opec is doing a good job of keeping the price at the same level. On the other hand, increasing production is proving more difficult.
Russian oil important for diesel
The diesel price this week is reasonably in line with oil. On Tuesday, April 19, the quotation for diesel stood at €156,59 per 100 liters. That has dropped today (Friday) to €151,83 per 100 liters. A possible ban on Russian oil would be very annoying for diesel production in Europe. Of the 3 million barrels of oil Russia exports to Europe, almost 1 million are used to produce diesel. Russia is also an important supplier of heavy oil (such as fuel oil).
Most oil for the Netherlands is supplied by ships. In that respect, our country is fairly flexible when it comes to switching suppliers. However, finding crude oil that meets similar specifications for diesel production may prove to be a bigger hurdle.