The losses in the oil market in the first half of the week have almost been made good in recent days. Messages about declining demand are interspersed with concerns about less availability, which is clearly reflected in the quotation.
From last week's peak of $113,22 per barrel, Brent crude prices fell sharply. On Wednesday the price even went to $100 per barrel, but ultimately closed above that, at $101,63 per barrel. Today the $110 mark is very close with a closing price at $109,98 per barrel.
Is demand for oil weakening or will the crisis with Russia disrupt production? That question has been bothering traders for a few weeks now. Among traders, fears of a boycott of Russian oil have taken over in recent days. This is mainly due to the problems with gas supplies from Russia, which are no longer possible according to the Ukrainian grid operator due to the war in the East. This fuels speculation that the conflict between the EU and Russia will get further out of hand.
New insight
In the market report presented on Thursday, May 12, the International Energy Agency (IEA) made a 180 degree turn compared to the previous edition of the report. On March 16, the IEA predicted that a shock wave could ripple through the market as a result of the loss of Russian oil due to Western sanctions. In the recent edition of the report, this effect is scaled down. Production is gradually being increased in the Middle East and the US. At the same time, the IEA expects demand for oil to grow less rapidly due to disappointing economic growth and the ongoing problems with the coronavirus in China. Oil demand could be significantly deflected for the rest of this year and early 2023. The consequences of an EU ban on Russian oil can therefore most likely be absorbed, according to the agency.
A total ban on the import of Russian oil by the EU does not seem very likely. For an embargo, the 27 member states must vote unanimously in favor. However, several Member States are highly dependent on energy from Russia and fear the consequences of such a ban on their own economy. Hungary has already declared itself one of the main opponents of a complete embargo.
Effects of expensive diesel
Another interesting point that the IEA points out is the high fuel prices at the pump. “Rising pump prices and slowing economic growth are expected to significantly dampen demand recovery for the rest of the year and into 2023,” the IEA said. The price of diesel is really being felt in the real economy. The current high diesel prices are at the expense of what remains below the line for companies. Several analysts agree that a drop in demand for fuel, especially diesel, is imminent. Partly due to reduced economic growth and partly due to the possible use of alternative energy sources where possible. Switching to another energy carrier is not easy for sectors such as road transport or agriculture, experts say. The development of new technologies can be given a boost by high fuel prices, but it remains primarily a matter for the longer term.
There is no sign of a drop in demand in the Dutch diesel price yet. The price is lower compared to last week, but after the dip on May 10 at €149,37 per 100 liters, the recommended price has risen again today to €153,13 per 100 liters.