Dear Editor,
In March 2020, OPEC witnessed a stalemate between Russia and Saudi Arabia, two leading oil producers, over the issue of a production cut to effectively control crude oil prices on the global market. Of note, Russia refused to cut its production, and the impasse caused a steep fall in oil prices, coupled with the COVID-19 pandemic and brinkmanship between the two oil giants, which appeared by complex geopolitical and geo-economic factors.
Fast track to 2022, the US Energy Information Administration (EIA) raised its 2022 Brent Crude spot price to US$105.22 per barrel this year, compared to its earlier forecast of US$82.87 per barrel.
Unfortunately, a result of Russia’s invasion of Ukraine, and subsequent sanctions on Russia and other actions created, propelled significant market uncertainties about the potential of oil supply disruptions, causing oil prices to close at almost US$124 per barrel in the first week of March 2022.
The vast majority of Russia’s oil exports is purchased by Europe and China, which together account for 90 percent of that country’s export. Russia is the world’s biggest exporter of refined oil to the global markets, and is the second-largest exporter of crude oil, behind Saudi Arabia; exporting about 2.85 million barrels per day.
Further, according to the International Energy Agency (IEA), Russia’s oil customers are varied, and are outside of Europe, mostly like in China and the US. And, of recent, Russia has sold oil to India at a discounted price, making its export stronger in the wake of sanctions.
On the other hand, the sanctions on Russia’s oil seem to be ineffective in the short run, based on Russia’s global position on the oil market, with its customers’ dependency and new oil trade deals.
Although the EIA has reduced Russia’s oil production in its forecast, it still expects that global oil inventory levels would average around 500,000 barrels per day from the second quarter of 2022 up until the end of 2023 – being mutagenic with the strong expectation to put downward pressure on crude oil prices.
However, this forecast is conditional, if production disruptions in Russia or other oil-producing countries are more than the EIA’s forecast.
In conclusion, if the US really wants to squeeze the Russian oil production and supply on the global market, and reduce other countries’ dependency on Russia’s oil, then the US should remove its sanctions on Iran and Venezuela oil trade, and let these countries increase production levels as a means to counteract any oil supplies’ shortfall on the global market, regardless of their affiliation with Russia, and the perceived political implications. Such a move would in effect bring down oil prices well under US$100 per barrel.
Truly yours,
Paul Ramrattan
