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Oil prices will climb this winter | OilPrice.com

In less than a month, the embargo on maritime exports of Russian oil to the European Union will enter into force. As a result, the global supply of oil will become very thin, as Russia is the largest exporter of oil and fuel in the world. And the market is getting ready.

Again, hedge funds like oil and buy it on the futures market in significant volumes, according to Reuters’ John Kemp. Last week’s buying reached 22 million barrels of Brent crude and 15 million barrels of West Texas Intermediate crude.

India buys Russian oil at a discount, so it’s buying a lot: its share of Middle East oil imports fell to a 19-month low in September, it says new data. Russia has overtaken Saudi Arabia as India’s second largest supplier after Iraq.

China is also buying Russian oil and has given no indication that it will stop when the embargo takes effect. The same goes for the G7 price cap on Russian oil, which is also due to take effect in a few weeks. China has already said this will not change its current oil buying habits.

However, with the EU embargo and the G7 price cap, what will almost certainly happen by the end of the year is that oil will become more expensive than it is now. Perhaps more worryingly, fuel prices – especially diesel – will rise as oil supplies continue to thin while new refineries are not on the horizon.

The situation with fuel will also become significantly more complicated in February when the Russian EU fuel embargo comes into force. According to the Wall Street Journal, the European Union currently imports roughly 400,000 barrels of Russian diesel per day. messageas well as 1.7 million barrels of diesel per day from other suppliers. Those 400,000 barrels per day will have to be replaced on February 5. And it will support higher inflation.

“Europe will pay whatever these producers ask for, and it will be very, very high,” Benedict George, head of diesel prices at Argus Media, told the WSJ. “If something unexpected happens, the price will go very high, very quickly, because there is no one to fall back on.”

Distillate stocks are below historical averages in all regions, especially in the United States, which is also the main exporter of petroleum products to the European Union. This means prices will remain elevated as the only new refining capacity is in the Middle East and China and is limited. Demand for diesel fuel, on the other hand, is consistently strong as the fuel is used worldwide for trucking.

Europe could import more fuel from the US and China and cut exports to South America and Africa, according to one S&P Global oil analyst who spoke to the WSJ. Of course, this would help him deal with it, but it will cause a ripple effect on two different continents.

OPEC+ production cuts also need to be considered when looking ahead to the next few months in oil. Some expect the anti-Russian oil embargo to reduce global supply by about 1 million barrels a day. OPEC+ is cutting another 1 million bpd from its collective output. That’s 2 million bpd in lower oil inventories at a time when U.S. production is also rising. to slow down.

In this context, institutional traders are likely to continue to buy oil, regardless of the prospect of China’s Covid policy, which has served as a major deterrent to oil prices this year. Oil supplies are about to tighten, and if the G7 succeeds in putting its price cap in place and Russia stops selling oil to buyers who adhere to it, supply will tighten a lot. And life will be even more expensive.

Irina Slav for Oilprice.com

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