Oil headed to Turmoil
  • 10 Jun 2022

Earlier last week, crude oil prices touched a high of $124 per barrel after March once again. This rise was due to the EU (European Union) deciding to cut down Russia’s oil imports by 90% and that all EU countries would have to stop their imports within 6 months. Russia accounts for 14% of the world’s oil supply and the imposed sanctions are making it tough to meet the increasing demand.

This week, crude still sustains above $120 per barrel after Saudi Arabia announced a hike in the OSP (Official Selling Price) to $6.50 for July which is the all time high after May. The expected rise was only $1.5 but they hiked it by $2.1 from June. The crack spread which is the difference between the purchase price of oil and selling price of the final product was at $60.54 at an all time high.

In the recent OPEC meeting, it was also agreed upon to increase the production to 648M barrels for July and August due to the imposed sanctions. Ideally this should bring the oil prices down but as said by an OPEC member that it is difficult to meet these targets due to supply issues from various countries. The demand is just going to rise as there is hope that China will lift the lockdown in significant parts of the country. The US inventories also have come down by 5M barrels to 414.4M barrels which is below the five year average. This will lead to further increase in prices and it is unlikely for them to fall anytime soon.

Europe is exploring other options like West African crude from Nigeria and Angola. Due to high demand the prices of Nigerian crude are touching a premium of $7 hitting all time highs. Imports towards Europe from the US were also 15% high in May as compared to March. The exports from various other countries could help maintain the prices but it is still unsure if the required demand will be met.

There are multiple alternatives to crude oil which could be more in use toward the future such as bio fuels which is vegetable oil produced from sugarcane and wheat. It is predicted that by 2045 bio fuels will be used by 20% of the consumers. It is also a sustainable option as the amount of carbon dioxide released is limited to how much is consumed by the plants. There are also other fuels such as oxyfuel where the fuel is burnt using oxygen and the gasses can be separated in a way that the carbon dioxide is captured and only the pure liquid form is used for transportation.

The rising prices are encouraging fast-tracking the development and usage of electric vehicles. Around 18 countries have decided to stop selling diesel and fuel vehicles by 2030 and switch. Countries like India, China and the US aim for 30-50% of their sales to be electric vehicles. The EV market share doubled in 2021 from 2020 and the highest sales are expected from China and Europe. These alternatives will definitely rise in the long term due to more efficiency, sustainability and environmental factors.

Also Read:-Oil is the only black!


- Vinati Jethra