Threat of Russian oil embargo sends crude prices close to 2008 levels

In July 2008, the price of a barrel of Brent crude oil reached $147.5. This morning, it exceeded $139. Last Monday, it was still below $100.

But in one week, we have gone from a context where the US and Europe announced sanctions sparing Russian hydrocarbon exports on which Europe is very dependent (remember, about 25% of the EU’s oil imports come from Russia and 40% of its gas imports) to discussions that are apparently well advanced on an embargo on Russian oil exports. The US administration even declares itself ready to take the step alone, if this is not possible in the short term for the Europeans; it must be said that Russian oil has represented only 3% of US imports in 2021 and has even been zero in recent weeks. The market is therefore logically already projecting itself into this new configuration.

As expected, especially after OPEC’s decision not to accelerate its production increase last week, the seemingly decisive move towards an Iranian nuclear deal and the prospect of 0.5 to 1mb/d of crude oil returning to the market is not enough to stop the price rise. The US is apparently actively negotiating with Venezuela to kill two birds with one stone: bring more crude back to the market and get Venezuela out of the Russian influence zone by lifting sanctions against the Maduro regime. But this would still not be enough and would probably require a significant increase in the use of strategic reserves, with last week’s decision to put 60mb on the market offering only a very short-term solution to compensate for the loss of Russian oil.

To make matters worse, Libyan production is still disrupted and has fallen below 1mb/d, while the number of active oil wells in the US fell last week. Everything is working together to push the price of crude up, until demand starts to adjust. Saudi Arabia, for example, has sharply increased its prices to its Asian customers, which could slow down refining activity somewhat.