Oil prices ended sharply higher on Monday, spurred by the shutdown of the main Norwegian field and by fears of a widening conflict between Russia and Ukraine. The price of a barrel of Brent from the North Sea for delivery in January rose 3.18%, to close at $73.30. Its American equivalent, West Texas Intermediate (WTI) with maturity in December, rose 3.19% to $69.16. For Andy Lipow, of Lipow Oil Associates, “it’s a combination” factors that allowed black gold to strengthen so significantly.
The market was first stimulated by US President Joe Biden’s decision to authorize the use of long-range missiles supplied by the United States for Ukrainian strikes on Russian territory. This is a significant turnaround for American diplomacy, because the government of Joe Biden had until now always refused requests from Ukrainian President Volodymyr Zelensky in this direction. In reaction, the spokesperson for Russian diplomacy, Maria Zakharova, warned that the use of these missiles to target Russian territory “would mean direct US participation” and would constitute “a radical change in the very essence and nature of the conflict”. “Russia’s response in such a case will be appropriate and will be felt”she added. “This is worrying because Russia had warned that this could lead to a widening of the conflict, which can be interpreted by the possible attack on targets linked to NATO in Europe”explique Andy Lipow.
Fermeture de Sverdrup
Furthermore, operators were sensitive to the announcement of the closure of Norway’s largest oil field, Sverdrup, located in the North Sea, after an incident at an electrical power station. The operator, the Norwegian public company Equinor, confirmed the shutdown to the Norwegian daily Dagens Naeringsliv and indicated that its teams were working to restore power to the offshore platform. The site produces approximately 755,000 barrels per day when operational. “We don’t know how long it will take to restore power”which creates uncertainty on the crude supply, according to Andy Lipow.
Oil prices also benefited from a slight decline in the dollar, after two weeks of galloping. As the majority of crude purchases are denominated in this currency, a weakening of the greenback often leads to a mechanical appreciation of the price of a barrel. Despite Monday’s surge, the black gold market still shows signs of weak demand. Brent and WTI are all close to a so-called contango configuration, in which the price of oil for closer delivery becomes lower than the price for a more distant deadline. This situation, relatively rare and considered abnormal, reflects demand lower than supply in the short term.
What long-term trends should we watch for in energy markets as a result of rising geopolitical tensions and fluctuating oil prices?
Guest 1: John Doe, Academic Expert on Energy Policy and Market Analysis
Guest 2: Sarah Smith, Journalist covering Energy Markets and Geopolitics
Interviewer: Thank you for joining us today, John and Sarah. To begin with, can you help our audience understand what factors contributed to the significant rise in oil prices on Monday?
Guest 1: Certainly. As the article mentions, there were a combination of factors at play. The shutdown of the Norwegian oil field, due to a power outage, created uncertainty around crude supply. This was compounded by fears of a potential widening conflict between Russia and Ukraine, following President Biden’s decision to authorize the use of long-range missiles. Additionally, the weakening of the US dollar provided some support to prices.
Guest 2: Absolutely. It’s worth noting that oil is priced in dollars, so a weaker dollar makes it more affordable for buyers holding other currencies. This can lead to an automatic increase in demand and, therefore, prices. However, the main driver of the recent rise has been geopolitical tensions. The threat of escalating conflict in Eastern Europe has investors worried about potential disruptions to supply chains and other economic consequences.
Interviewer: That’s interesting. John, could you expand on your comment about demand being lower than supply in the short term? How might that affect the market moving forward?
Guest 1: Sure. As the article mentions, the contango configuration we’re seeing in the market right now indicates that there’s more supply than demand for near-term delivery. This could imply that some buyers are hesitant to commit to purchases due to economic uncertainty or fear of disruptions. However, if geopolitical tensions continue to escalate, demand could rise as nations stockpile oil to hedge against potential supply shocks or disruptions.
Guest 2: It’s also worth noting that many major oil producers like OPEC+ have already agreed to cut output, which suggests they anticipate a decline in demand over the coming months. This could exacerbate any supply-demand imbalances and lead to further price volatility.
Interviewer: That’s
