Oil prices are likely to continue to climb – potentially beyond $130 per barrel.
That’s according to Rystad Energy CEO Jarand Rystad, who made the statement in an extraordinary note on the conflict in Ukraine, which was sent to Rigzone on Thursday.
“We expect that Russian oil exports will plunge by one million barrels per day from the indirect impact of sanctions and voluntary actions by companies,” Rystad said in the statement.
“Saudi Arabia and the UAE have spare capacity to replace these supplies but may not act immediately. Strategic reserves of 60 million barrels will be released by the U.S. and the OECD through the year, while U.S. production levels will only manage to respond meaningfully towards the end of the year,” he added in the statement.
“The net impact is that oil prices are likely to continue to climb – potentially beyond $130 per barrel,” Rystad continued .
In the note, Rystad highlighted that the EU has so far exempted Russian natural gas from the sanctions list in order to avoid exacerbating the ongoing energy crisis.
“Russia, however, might counter EU sanctions by halting its gas supplies to Europe,” Rystad warned.
“Alternatively, the EU could change course and opt to include gas in the sanctioning scheme. Either way, our analysis shows that Europe could manage to survive a supply shortage brought on by a complete stop in gas from Russia – albeit at a high price,” he added.
In a separate extraordinary market note sent to Rigzone on February 24, Rystad noted that Rystad Energy’s simulations showed oil prices could surge to around $130 per barrel, “with consumers feeling the squeeze at the gas pump and in their power bills”.
“The reality is that significantly higher prices are on the horizon in Europe and overseas,” he stated in the note.
In a statement sent to Rigzone on Monday, analysts at Enverus Intelligence Research outlined that they expect “extreme volatility” in Brent over the coming months but added that they ultimately believe prices over $100 per barrel, coupled with weaker economic growth, is not supportive of resurgent oil demand.
In a report sent to Rigzone on Tuesday, analysts at Standard Chartered revealed that they had raised their Q1-2022 Brent forecast to $94 per barrel and their Q2-2022 forecast to $88 per barrel. The analysts also highlighted that they had increased their 2022 average Brent forecast to $85 per barrel, from $75 per barrel, and their 2022 average WTI forecast to $81 per barrel, from $72 per barrel.
This time last year, Brent Crude was trading around the high-$60s and West Texas Intermediate (WTI) was trading around the mid-$60s. Both commodities have soared past the $100 per barrel mark in the wake of the Russia-Ukraine conflict, which has prompted several energy majors to retreat from Russian operations. At the time of writing, the price of Brent stood at $111.77 per barrel and the price of WTI stood at $109.26 per barrel.
Implications on Global Energy Markets
Regardless of how the Russia-Ukraine conflict will end, it will have deep and long-lasting implications on geopolitics, European policies and the global energy markets, Rystad highlighted in his latest extraordinary market note.
“OECD countries will unite around democratic values, increase defense spending and ramp up investments in alternative energy supply,” Rystad said in the note.
“European countries will take measures to end their risky dependence on Russia for energy supplies,” he added.
“Furthermore, Western companies will no longer support Russia with finance and technologies for oil and gas developments. Gigantic projects like the Vostok Oil development will be slowed and some Russian projects might be cancelled altogether, as time is running out for fossil fuel developments in the era of the energy transition,” Rystad continued.
The Rystad Energy CEO noted that Western contractors currently secure orders representing about 25 percent of all oil and gas investments in Russia. Should those contractors leave the country, it will undoubtedly cause delays and disruptions to ongoing operations, he said.
Rystad also stated that the green shift is now likely to accelerate in Europe, further motivated by energy security.
“In the medium term, however, CO2 emissions could increase as coal may have to replace Russian gas in Europe,” he warned.
“Countries like Germany and Italy will likely ramp-up LNG regasification capacities as quickly as possible. In the short-term, this crisis is adding to the ongoing energy crunch, particularly in Europe,” he added.