Moreover, an undersupplied oil market was plunged into a further deficit when major oil producer and OPEC+ member, Russia, invaded Ukraine in February 2022. Subsequently, the oil price rose as high as $124/bbl, a level not seen since 2012 (Figure 6.1). Prices have since cooled but remain extremely volatile as inventors grapple with upside and downside risks to the outlook.
Brent Crude Oil Prices
Crude Oil BFO M1 Europe FOB $/bbl
140
Russia invades Ukraine
120
Start of Covid-19 pandemic
100
80
60
40
OPEC + Production rates
20
0 Sep-19
May-20
Jan-21
Sep-21
May-22
Source: BER, 2022
Looking Ahead On the upside, higher demand in an already stretched market amid substitution to Brent crude would lift prices. There are two main reasons for the substitution of oil, both linked to the ongoing war in Ukraine. First, sanctions on Russian oil and oil products will result in European countries seeking out alternatives. Though
some of this has already started taking place, sanctions will only fully come into effect at the end of 2022. From early December, the European (EU) will stop buying all Russian crude oil delivered by sea. This amounts to roughly two-thirds of all EU oil imports from Russia. In February 2023, the EU will further ban the purchase of all Russian refined oil products. Deliveries via pipeline have not been banned. However, Poland and Germany have stated their intention to stop importing via pipeline by the end of 2022. Germany is the biggest importer of Russian oil and their participation in the sanctions will result in the banning of 90% of total EU oil imports from Russia.
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