Oil Jumps as Fresh Pessimism Hits Prospects for Peace and Supply Worries Rise

Written by: Susannah Streeter | Hargreaves Lansdown

Optimism is seeping away about progress in talks to achieve a ceasefire in Ukraine and that’s sent the price of oil on the march upwards again amid heightened worries about supply. As Ukraine refuses to surrender to Russian forces in Mariupol despite the devastating siege of city, the chances of a breakthrough in negotiations are fading, with a gulf in position separating the two countries.  Brent crude has jumped 4% to more than $112 dollars a barrel as tensions remain high. Investors are eyeing key NATO talks later this week, aimed at tightening the sanctions screw on Russia and the prospect of a European crude embargo is expected to be put on the table once more. With the possibility that more than a million barrels of Russian oil a day will be snubbed, given that the Netherlands and Germany combined received around a quarter of Russia’s crude and light oil exports, demand would shoot up for crude supplies from OPEC+ nations. But the problem is that even now they aren’t coming up with the goods, as the cartel missed a daily production target by more than a million barrels in February, with US oil rigs not yet able to take up the slack.

As war rages in Ukraine – another protracted conflict is also adding to the  nervousness around the oil price, after Houthi rebels attacked a refinery in Saudi Arabia. It’s officially a temporary outage but still has undermined the effect of Saudi Aramco’s pledge to ramp up production in coming years. These higher crude prices have helped boost the share prices of energy giants BP and Shell on the FTSE 100, with shares in both companies opening up strongly in early trade. 

But once again fresh turbulence has hit the airline industry, after warnings of a supply shock from the International Energy Agency came with proposals to reduce demand, including restrictions to business air travel. British Airways owner International Consolidated Airlines group had a volatile start to trading, while EasyJet also opened lower. Just as the pandemic restrictions had eased, and executives have become more used to fastening first class seat belts once more, bookings are likely to fade away again. 

There are likely to be fresh attempts to kick cars out of cities which will now not just be driven by an environmental impetus, but an energy security mantra too.  The IEA estimates that car free Sundays in cities across the world would help save 380,000 barrels of oil a day and reducing speed limits by 10k would save 290 thousand barrels per day. There have been many attempts to drive fast energy hungry cars and international executive travel out of fashion, and let the train and the virtual screen take the strain instead, and here’s a chance that faced with an energy supply crunch governments may be forced to push these policies, in a bid for energy security.

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