high oil prices are here to stay

Top 3 reasons high oil prices are here to stay            

Over the time, the world population is hearing about the increased oil prices. Some appears to decide on collaborating on work with others to save their budget while others are choosing to walk for longer distances. Any time soon none of us especially the drivers and businesses are hearing for any kind of significant relief despite the higher oil prices.

Earlier the past week, the price of Brent crude boosted to $124 a barrel. Since the first week of March, it is the highest post an announcement by EU according to which they will cut down 90% of Russian oil imports by the end of 2022.

Recently, we have also noticed a drop down in prices to $117 per barrel when OPEC+ countries decided to pump more oil. Even though it was not enough to feel what pain consumers have been going through or to tame rampant global inflation. Being the world’s second biggest economy, EU embargo and recovery in demand will make sure keeping the prices high.  

Reasons high oil prices are here to stay

Non-availability of alternatives

According to the International energy agency, Russia accounted for 14% global oil supply in the previous year. In the meantime, the west sanctions on Russia are up with creating a significant gap in the market. The agency further shared that Russia has cut down 1 million barrel per day since April and is expected to increase to 3 million barrels per day by the half of this year.

OPEC+ countries with a planned deal with Russia tried to handle the situation and relax the world population by making an announcement for additional 648,000 per barrel pumping in July. In order to counteract against the sanction, International Energy Agency forecast the production by 3 million barrel a day. This may get difficult to achieve as even before the Russia-Ukraine war many of the producers were switching towards the renewable energy.

OPEC+ countries are even limiting the exports to meet the demand in their countries.

Greater demand

After 2 months of strong lockdown, China is now open for the population. The more people leave their houses, the greater will they be demanding. In the month of May, China has imported up to 37% more comparatively to 2021.

Though the demand in China grew at an extensive level, the greater influences on the prices are no longer expected. One should only expect an increase now!

EU ditches Russia’s oil

Despite the growing inflation across the world and economic recession, there seems the similar level of demand for the oil. According to Smith, even there is a supply side issue, the oil prices won’t come back substantially.

On 3rd June, 2022, EU formerly adopted it’s oil embargo as a part of 6th package of sanctions imposed on Moscow. Majority of the countries today have 6 months period to phase out imports of Russian crude and 8 month for the rest of the related products.

In the current scenario, EU is cutting down imports to an extent from Russia and choosing to go for the alternatives available. The kpler data shows the increased imports from Angola, almost triple while Iran and Brazil are now asked for a higher 40% and 50% respectively.

One of the senior fuel analyst, Roslan shares that sourcing oil from far locations will not help in reducing the prices. This is due to the higher freight cost. The world is in dire need to get the prices back to normal!  

What to expect more? Should you expect greater inflation? Hope things go well!