The oil price continues to rise, but the upward trend is weakening. Trade barriers created by the war in Ukraine play an important role in this regard. Fuel prices, meanwhile, are hitting record levels. It is striking that the demand for petrol and diesel continues to grow.
The price increase of Brent crude oil is starting to weaken somewhat. On Monday, June 6, Brent oil closed at $120,10 per barrel. By Wednesday, June 6, that had risen to $123,83 per barrel. The market takes a pause there and today (Friday, June 10) the price stands at $123,94 per barrel. The production increase announced by Opec+ last week has therefore not proven to be sufficient to reverse the rising trend in oil prices. Several members of the cartel are already at maximum production capacity. According to analysts, Saudi Arabia and Russia are the only countries that have significant spare capacity. This is also one of the major pain points in the current market.
The oil and energy market in a broader sense is used for geopolitical purposes. Wandel durch Handel (change through trade) has been an important principle in Western foreign policy since the fall of the Wall. Europe in particular is now reaping the bitter fruits of this. Russia has quietly acquired a monopoly position on the European energy market. On the other hand, Russia's state finances are largely dependent on raw material exports and in particular energy sales to Europe. Europe has been warned from various quarters about the risks that this dependence entails.
Cartels
The Russian invasion of Ukraine has turned global relations upside down. Europe wants to get rid of Russian energy as quickly as possible. After weeks of discussions, the EU has reached an agreement on a boycott of Russian oil. The US previously banned oil from Russia. Both major consumers must therefore enter the world market to find a replacement for the oil flow from Russia. Other suppliers are only few and far between. The result is high oil prices and different blocs are increasingly coming into conflict with each other. The West and their allies are on one side and Russia on the other. Several countries in Latin America and Africa are leaning towards Russia, but are careful not to offend the West too much. China and India are trying to keep their political distance from the conflict in Ukraine. They want to remain neutral and maintain good (trade) relations with as many countries as possible. China and India are keeping their borders open to Russian oil, as they previously did with Iran and Venezuela, for example.
Walking through Trade has major disadvantages, but the current policy with sanctions and trade restrictions - which involves a kind of cartel formation, as some experts call it - is not exactly favorable for the price development of oil. It gives Moscow and Riyadh a very important voice in the oil market. The response of the US and the EU to this, by fully focusing on sustainable new energy sources in order to become independent of oil, takes time and the outcome is by no means certain. Until then, we should not neglect fossil energy sources, the oil industry warns.
Expensive diesel
Crude oil has risen extremely in price over the last two years (as a reminder in April 2020, Brent was at a low of $16 per barrel), but is not yet at record levels. Oil statistics are breaking records in several countries. In the Netherlands, the price for diesel has risen to €170,58 per 100 liters. That is not yet a record, but we do have to take into account a reduction in excise duties. Several analysts predict that the increase in fuel prices has not yet come to an end. The most important indicator for this is the demand for petrol and diesel, which is still showing an upward trend. The extremely high fuel prices therefore have only a very limited influence on demand.