Crude Oil Is Now Likely To Exceed $200 by the End of the Year.
The Russian oil supply for Europe is lost for good.
The banning of Russian crude oil by the Europeans will create a supply shock. Long-term financial conditions do not encourage American shale producers to increase extraction. While some imagined that everything would be back to normal within a few months, many are beginning to open their eyes to an increasingly obvious reality: the Russian oil supply for Europe is lost for good.
Under these conditions, more and more commodity specialists are no longer hesitating to bet on a barrel of oil at 200 dollars by the end of 2022, with why not a peak beyond 250 dollars.
According to Doug King, head of RCMA's commodity fund, the oil will end the year between $200 and $250:
“This is not temporary. We're headed for a crude supply shock!”
Alok Sinha, global head of oil research for Standard Chartered, also sees the situation as destined to continue, but the analyst predicts a lower peak, around $175. Ben Luckock, head of oil trading for trader Trafigura, is the most cautious: he expects oil at “only” $150 this summer. This lowest forecast is still almost double the level seen in 2021:
One thing is certain, oil is not about to stop rising.
First, because replacing Russian barrels is not as easy as it sounds. The U.S. shale sector needs 12 to 18 months to ramp up crude production, but futures contracts for delivery in 2023 are only trading at about $80, which is not enough incentive, says Doug King.
The reconfiguration of flows is also more complex than some may claim. China and India can buy some of Russia's oil, but not all of it for logistical reasons. The size of the ships is not always adapted to the different ports and maritime routes in Asia, and the quality of Russian oil does not always correspond to the needs of Asian refineries.
Asian countries have also spent many years building partnerships with Gulf producers. China and India are not going to break their relations with these countries to buy Russian oil that the Europeans no longer want. Finally, even if prices at the pump become so unbearable that they destroy consumer demand, global demand will remain strong. With the pandemic and the sea freight crisis, manufacturers and governments have realized that it is necessary to build up stocks. Purchases to replenish reserves will continue for several more months, Doug King anticipates.
Some believe that this increase towards $200 a barrel of oil will accelerate the energy transition. I think that's a certainty, but it won't happen overnight. This fundamental trend will accelerate, but it will take years, and at the moment, energy security is the emergency of the moment. And for that, the only short-term solution is hydrocarbons.
Another limiting factor in the move away from fossil fuels is the considerable metal intensity required for the energy transition. However, metal refining is concentrated in China and the quantities of metals available will not necessarily be available in Europe. The current outlook is not encouraging, but we will have to see how things develop in the months and years to come.
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