Brent oil, reference in Europe, has drilled the area of 74 dollars per barrel, playing annual minimums. Now, the price is hesitating, dancing on that area waiting for some catalyst to carry the price of crude oil (for example, if the negotiations between the US and Russia on Ukraine fail) or down (if peace arrives before The expected and Russia returns normally to the global crude market). At the moment, experts point out that oil descents are due to this expectation of an early peace, to the increase in inventories in the US during last week Already the new strain of the covid that is being analyzed by China. These three factors are leading to the price of crude to quote at least 2025, losing $ 74 at times, when at the end of January the price exceeds 82 dollars per barrel. Not only that, in the event that peace arrives in Europe and the consequent relief about sanctions to Russia occurs, Analysts from an important American bank anticipate a fall of more than 13% For crude oil: a barrel decrease between 5 and 10 dollars.
The price of oil has begun the week under pressure, dragging the losses recorded on Friday. Several factors are contributing to the fall in prices, from the resumption of key supplies to the possibility of Russia replacing its oil in the market in case of a peace agreement with the United States on Ukraine. According to John Evans, PVM Oil analyst“No matter decisions on interest rates, inflation data … oil prices have been depressed or plans.”
On the one hand, it is worth highlighting the increase in inventories in the US, which last week They expanded at 4.6 million barrels. This increase usually occurs because the appetite due to the oil crude is reduced or because they are under maintenance tasks, in any case, an increase in inventories usually involves lower consumption in later weeks. So, this increase began to twist a week that seemed bullish for oil.
New Covid strain
But not just that. Although this is a very distant and low risk, un Group of scientists in China has discovered a new coronavirus in bats, called HKU5-COV-2, which has the ability to interact with the human ace2 receiver, the same one that it employs SARS-COV-2 to invade human cells. This finding, published in Cell magazine, has aroused restlessness about the risk of a possible transmission to humans, which would threaten to reduce mobility and global transport in case any of the worst forecasts were fulfilled. It is not necessary to remember that with the Covid pandemic in 2020, They got to pay even negative prices for oilthat is, there were producers and traders who paid to remove the crude from above (it did not fit anywhere).
The investigation was directed by the virologist Shi Zhenggli, known as the “bat woman” due to her wide studies on Coronavirus in these animals. The experiments carried out by his team showed that the HKU5-COV-2 is able to infect human cells with a high expression of Ace2. It was also found that transmission is also possible in human fabrics models and through the respiratory tract. Although this is the factor that is least influencing the crude, some investors could be cautious until more light is shed on this matter. Another more relevant factor for crude is the one that has to do with the Ukraine War (the possible peace agreement) and with the crude that it flows again from the Iraqi Kurdistan and by Kazakhstan.
Oil flows again
One of the elements that is pushing the crude downward is the possible resumption of exports through the Kurdo-Iraquí pipeline, which could carry crude from the Iraqi Kurdistan to the Turkish port of Ceyhan. The pipeline has been closed by legal disputes between Türkiye, Iraq and the Kurdistan, but if the differences on payments and income distribution are resolved, the initial flow could reach 185,000 barrels Diaries (BPD), with the possibility of recovering the 450,000 BPD that were exported before its closure two years ago.
Another factor that has neutralized any bullish oil impulse is the increase in Kazakh oil load through the CPC pipeline (Caspian Pipeline Consortium). Although Ukrainian drones attacks affected part of Kazakhstan’s supply that is transported to Russia, LThe reports indicate that exports from the Black Sea have been reviewed up to 1.67 million barrels per day (MBPD)from the initially scheduled 1.42 MBPD. “Even if the repairs take a few weeks, there seems to be a protection mattress against the estimated loss of 380,000 barrels per day,” explains Evans.
Beyond these logistics factors, the market is still attentive to peace negotiations between the United States and Russia about war in Ukraine. If an agreement is reached, Russian oil could circulate without restrictions (sooner rather than later, given the attitude of the US president and the inability of Europe to enforce the sanctions), which would add a considerable offer to the market. Evans recalls that “at the beginning of last week, the possibility of conversations pressed to the oil market, because any agreement could mean the return of Russian barrels under sanction.”
The geopolitical scenario remains unpredictable. In the middle of last week, the price of oil rebounded after the resistance of Volodimir Zelenski to negotiations between Moscow and Washington, but towards the end of the week the market fell again when Ukraine softened its position, increasing the possibility of an agreement . According to Evans, the Ukrainian president “had no choice but to use a more conciliatory language and could even accept the mineral agreement required by the United States in exchange for more military support.”
A higher oil drop
Negotiations to end the war between Russia and Ukraine have begun, and an eventual peace agreement could shake the global energy market. According to the Global Energy Weekly report, prepared by Francisco Blanch and his team of raw material strategists in Bank of America Merrill Lynch, the end of the conflict could bring with him A relief in sanctions Energy imposed on Moscow, which “would allow incremental volumes of oil, gas and coal to reach world markets, providing a respite to energy consumers.”
One of the main effects of a possible peace agreement would be the reduction of commercial routes. In recent years, The sanctions forced Russia to divert their crude oil exports to India and China, on long and expensive trips. However, if the restrictions are softened, Russian barrels could return to Europe, eliminating those journeys and allowing a more fluid offer. In the words of analysts, “if Russian barrels no longer need to make a long trip to India or China, and suddenly there is more available supply, the Brent could fall between 5 and 10 dollars per barrel.”
Another key factor is the energy stranded within Russia. With sanctions, a part of oil production was trapped in the country without access to international markets. A relief in restrictions would allow this crude to return to global circulation, which would add more offer and further press the downward prices. Bank of America experts warn that “the reduction of these long trade routes would release operational storage in the market”, increasing the availability of crude oil.
The third element that would contribute to price drop is the possible reactivation of energy service companies within Russia. With the sanctions in forcemany foreign technology and specialized team companies have abandoned the countryaffecting its production capacity. However, if some restrictions are raised, these companies could return and strengthen Russian energy infrastructure, increasing global production and supply.
The impact on Prices would not only affect crude oil, but also refined products. Currently, Russian oil products, such as diesel, must travel long distances to find buyers. With the reduction of these routes, the global refining margins could further fall, which would affect the profitability of the refineries and contribute to a market with lower prices.
The geopolitical risk
Despite these bearish factors, oil remains influenced by political risks. Evans warns that “history is repeated again with strong leaders and agreements”, referring to the possibility of Donald Trump, Vladimir Putin and Xi Jinping configure a new global order similar to that established by Roosevelt, Stalin and Churchill after World War II. Any movement in this sense could bring with it a reconfiguration of oil flows and affect prices in the medium and long term.
The oil market is also aware of other economic events that can influence the evolution of prices this week. Among them include global inflation data, interest rates, GDP forecasts, consumption, travel, tourism … However, according to Evans, “although any oscillation occurs in markets, oil prices will follow tied to negotiations on the future of Ukraine. “
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