Brent crude oil price exceeds $120/b

The price of Brent crude oil rose by almost $7/b yesterday. It even almost touched $124/b overnight before falling back towards $120/b. The market is extremely volatile ahead of the announcement of new sanctions against Russia during the US President’s visit to Europe. Yesterday, the main news agitating the market and causing gas and ruble prices to soar was Vladimir Putin’s decision to only accept ruble payments for Russian gas. While the energy sector seemed to escape the economic warfare waged against Russia in response to its attack on Ukraine at the beginning of the crisis, it has logically become the major issue again as Europe seeks to break its dependence on Russian hydrocarbons while the Kremlin uses this leverage while there is still time.

The flow of the pipeline carrying mainly Kazakh oil to the Black Sea was finally completely interrupted, causing a 1.4mb/d drop in oil supply which greatly contributed to push up prices. In the US, oil inventories fell sharply last week, both on the crude and product side. Production is still not taking off, demand is strong, Russian oil imports have stopped while the US is exporting oil to Europe which is facing a diesel shortage.

The only downward factor for prices is the uncertainty about the consequences of the pandemic in China: the authorities tried to be reassuring last week but the first high frequency indicators in March seem to indicate a clear slowdown in activity.