Last week, a barrel of Brent North Sea crude oil sold for $ 130. Currently, the price drops below $ 100 per barrel. This is still a higher price than before the Russian aggression in Ukraine, but at least the darkest scenarios have not materialized yet.
Developments on the oil market are already being taken into account by some filling stations in the Czech Republic. Yesterday alone, diesel fell by as much as four crowns per liter. In the case of gasoline, about two crowns per liter.
GRAPH: Comparison of Brent and WTI oil price developments
For the last month, in USD.
Source: tradingeconomics.com
From our point of view, the current decline in oil prices is a response to the weakening market fears that there will be a complete failure of Russia’s oil supplies to the world market.
On the one hand, Russia still has a problem selling at least part of its oil exports. However, despite Western reputational risk and the continuing threat of new sanctions, many Western companies are still willing to do business with Russia (eg Glencore or Vitol).
States such as China and India are also considering buying discounted Russian oil. These could partially compensate for a possible failure of Western markets.R
The oil embargo is hanging in the air
However, if Europe eventually decided to impose an embargo on Russian oil imports, following the example of the United States, the situation would be significantly complicated.
For Russia, this would be a failure of the main export market, which would hardly be able to replace. But it would also be a problem for Europe. It imports approximately 4.5 million barrels a day from Russia. And such a volume would be replaced (even with the use of strategic reserves) in a complicated way.
The most serious situation in such a case would be the situation on the diesel market, where Europe is in deficit for a long time. At the same time, we import not only the final diesel itself from Russia to the European continent. Europe also imports the type of oil (relatively heavy and high sulfur) that refineries commonly use to produce middle distillates, including diesel.
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High volatility persists
Thus, although oil is now rapidly depreciating the profits of the last two weeks, the market situation remains tense and it is not at all certain whether price stabilization will be a lasting phenomenon.
Further developments in Ukraine, or the duration and intensity of Russian war aggression, will be crucial in this regard. This could force a further tightening of anti-Russian sanctions by the European Union, including an embargo on Russian energy exports.
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