Russian invasion creates more concerns for oil market

Starting early in 2020, the COVID-19 pandemic created heightened uncertainty within the global oil market.

Now a new layer of uncertainty faces the market following Russia’s invasion of Ukraine.

The most recent short-term energy outlook from the Energy Information Administration stated, “A wide range of potential macroeconomic outcomes could significantly affect energy markets during the forecast period.”

Supply uncertainty from the conflict in Ukraine, production decisions of OPEC+ and the rate at which U.S. oil and natural gas producers increase drilling, were pointed out in the short-term outlook.

Brent crude oil

On March 8, the price of Brent crude oil hit $134 per barrel following Russia’s invasion of Ukraine. The increased geopolitical risk, as well as uncertainty about how announced and future sanctions, may affect energy markets was reflected by the price, according to analysis by EIA in a March 9 report.

The announcement of international oil companies to stop operations in Russia and the elimination of or limiting imports of energy commodities from Russia by the United States, United Kingdom and European Union also factored heavily.

Because of this, EIA’s short-term energy outlook forecasts a price of $117 per barrel for March and $116 per barrel for the second quarter of 2022. However, this forecast was completed prior to the announcement of sanctions on Russia. Additional upward pressure on crude oil prices is possible.

Consumption and production

Global consumption is forecast to average 100.6 million barrels per day in 2022, up 3.1 million barrels per day from last year. By 2023, consumption it projected to average 102.6 million barrels per day, according to the EIA short-term outlook.

Similar to the price per barrel of Brent crude oil, growth and consumption remain unclear due to any potential further Russian invasion and sanctions.

Diesel prices are expected to continue to increase, after averaging $4.03 in February – the highest average price for any month since March 2013. Crude oil prices will push the price of diesel to $4.43 per gallon in the second quarter of 2022, according to the EIA outlook.

Production is forecast to average 12 million barrels per day in 2022, after falling to 11.6 million barrels per day in December 2021. And in 2023, EIA anticipates record production of 13 million barrels per day. The current annual average record is 12.3 million barrels per day in 2019.

The full short-term outlook is available on the EIA website. LL