After last week's correction, the oil price is now showing an upward trend. The Russian dominance in the European energy market and the possible consequences that this could have scared not only the gas market but also the oil market. As a result, news with a price-depressing effect was snowed under.
Brent crude prices have risen from a dip on Monday (April 25) at $102,62 per barrel to $109,38 per barrel today (April 29). The rising tension between Russia and the EU plays an important role in this. Russia stopped gas deliveries to Poland and Bulgaria earlier this week because these countries refuse to pay in rubles. This not only caused mild panic on the gas market, but also among oil traders. Russia wants 'unfriendly' countries to also pay for oil in rubles. Now Russian oil is of course easier to replace than gas.
The demand, production and supply of oil on the world market are not entirely in proportion. So far, OPEC+ has stuck to its previously set strategy of gradually increasing production. According to EIA data, not as much oil is being pumped as before the outbreak of the corona crisis, but several OPEC+ members are already having difficulty filling the quota. The oil industry is pointing the finger at politicians.
Investments in fossil energy have been discouraged by politicians. That process accelerated shortly after the outbreak of the corona crisis, when energy prices collapsed. Now that demand for oil is picking up again, it is not possible to quickly scale up capacity. There has been insufficient investment in the fossil sector for this and new sustainable forms of energy generation have not yet been sufficiently developed. According to some experts, the EU has made itself extra vulnerable because coal-fired power stations and, in Germany, nuclear power stations have been closed early in favor of relatively clean (Russian) gas.
Not all signals are green for an increase
Although the increase in the oil price can be easily explained, there are also price pressure signals that are currently barely gaining traction on the market. For example, China continues to adhere to strict lockdowns in the event of a corona outbreak. Now that the number of new infections has risen sharply in the last two weeks, this is having an increasing effect on the economy and therefore the demand for oil. A possible agreement on Iran's nuclear ambitions is also still on the table. Experts have varying estimates of the likelihood of a deal, but it remains possible that Iran will be able to supply oil to the world market again more easily in the short term.
The high oil price can also indirectly throw a spanner in the works for oil producers. High energy prices are putting a brake on economic growth. Partly because companies are scaling down production due to high energy costs, but also because high fuel prices are a driver of inflation. That ultimately curbs demand for oil. Analysts do not think it is likely that the market will collapse completely, but a major correction in the medium term is not unlikely.
Diesel prices are rising rapidly
The diesel price was on the rise this week. Today the price even reached its highest point this month at €161,46 per 100 liters. This puts the diesel price at a comparable level to the end of March. That is remarkable to say the least. The oil price was slightly higher at the time and an excise duty reduction of €1 per 11,10 liters was implemented on April 100. Several European refineries are focusing on Russian crude oil for diesel production. This certainly also plays a role in the increase in diesel prices. However, crude oil from Russia has been in short supply for some time, partly due to self-imposed sanctions. Because of all the uncertainties, the oil companies are taking a larger risk premium, some analysts suspect. But more than a month ago, the diesel price was slightly higher and fuel consumption was still the same. This is undoubtedly a sign for the oil companies that there is also room to increase margins.