Brent crude oil has risen sharply in recent days. A possible boycott of the EU against Russian oil and everything related to it caused unrest in the market. Cracks in economic growth expectations and, as a result, lower demand for oil were pushed into the background.
After last week's rally, this week's oil price started a correction. On Tuesday, May 3, the price fell to $105,96 per barrel. However, news from Brussels quickly changed market sentiment. A possible boycott on oil from Russia pushed the price up to $113,39 per barrel. That is the highest price since March 25. The boycott goes further than just a stop on the import of Russian oil. Reuters news agency reports that in the draft version of the plan, European companies will also not be allowed to provide transport, mediation, insurance or financial services that serve the Russian oil industry as of June. It is still uncertain whether the plan will come through. This requires the consent of all Member States. Hungary and Slovakia are extremely critical of the measures.
The high prices are not a reason for OPEC+ to make adjustments to the established strategy of gradually increasing production. This means that members may pump an additional 432.000 barrels per day in June, the cartel announced yesterday (May 5). According to OPEC+ members, the oil market is fundamentally in balance. However, the cartel did point to the lingering effects of geopolitical factors and issues related to the ongoing pandemic.
Economic growth can put the brakes on
Although the oil market is experiencing an upward flow, analysts warn that disappointing economic growth could cause a major dent in confidence. Inflation in the eurozone and the United States is very high, partly fueled by the high oil price. This requires action from the central banks. The Fed is taking the lead and raised interest rates by 0,5% to 0,75% to 1%. That is the second consecutive interest rate increase and the largest increase since 2000. The goal? Curbing inflation. Analysts warn that this could also slow down economic growth. In addition, the problems with the coronavirus are not over yet, considering the lockdowns in China. The war in Ukraine is also causing unrest on the raw materials market.
The diesel price followed an almost opposite price movement compared to crude oil. On Wednesday, May 3, the diesel price rose to the provisional highest point: €167,12 per 100 liters. Remarkably, this is the highest price since March 27, despite the excise duty reduction that was implemented on April 1. The price has now dropped to €159,12 per 100 liters
In the meantime, oil companies are benefiting from oil and fuel prices. Despite significant write-downs on Russian investments, companies such as Shell, Exxonmobile, Chevron and Total presented billions in profits in the first quarter. The exception to this is BP, which had to take a loss of $20,4 billion due to very large interests in the Russian oil industry.