Oil prices to remain high despite ‘unprecedented’ volatility
Oil prices have gone on a wild journey over the past few days – peaking at 14-year highs of $139 per barrel before dropping below $110 later in the week.
The week has been characterised by swings as wide as 13 per cent, rallies stalling and reviving in the course of one morning, and $30 price differentials over one session of trading.
Brent Crude and WTI Crude rallied earlier in the week, with prices driven by intense geopolitical factors such as Russia’s invasion of Ukraine.
The escalating conflict raised fears of supply shortages and disruption, alongside Western sanctions targeting Russian oil and gas..
This caused prices spike to decade plus highs before dropping as much as $30 later in the day as Europe opted not to join in with the energy measures against Russia.
Ole Hansen, head of commodities at Saxo Bank described the situatation as ‘unprecedented’.
He told City A.M.: “From Monday to Wednesday Brent crude oil traded within a 33-dollar range, the widest I have seen for such a short period during all my years in the business. With that in mind, the current situation can easily be described as unprecedented. Unprecedented in the sense that we are witnessing a breakdown in normal.”
Commenting on when investors could expect markets to stabilise, he added: “The oil market will remain in a state of flux until a solution is found with regard to Ukraine or we reach price levels that force a reduction in global demand, thereby stabilising the market through creating a more balanced system.”
Currently, Brent Crude prices are down 0.12 per cent, at $111 with WTI Crude also dipping 0.84 per cent to $107.90 – however there is no reason to rule out a sharp rally or another slide before the weekend.
Alongside conflict in Ukraine, the tussling over supplies between oil nations has also caused prices to fluctuate.
Supplies have tightened since the start of the year, with OPEC+ failing to reach raised output targets of 400,000 extra barrels per day.
However, the White House has managed to weigh down prices since, through commitments to boost supplies with the help of the International Energy Agency (IEA) in an attempt to drive down the cost of living.
Nathan Piper, senior oil and gas at Investec, said: “The volatility was a combination of sanctions being applied to Russian and the UAE hinting yesterday they could produce more oil. We expect oil prices to remain high and volatile as further sanctions on Russia are considered and global spare capacity tightens.”
Despite the unpredictability prices remain elevated and well above $100 per barrel – levels the market failed to reach for over seven years.
Russ Mould, investment research director at AJ Bell noted that even after the reversal of price on Wednesday, oil is still higher than it was a week ago, nearly 30 per cent higher than a month ago and more than 60 per cent higher than a year ago.
Commenting on the ramifications, he said: “This is stoking fears of inflation, or even stagflation, since higher energy and fuel prices are a tax on consumers and corporations, reducing their ability and willingness to spend. A surge in oil prices to $147 a barrel in 2008 helped to tip the world into recession and revealed all of the fragilities in a global economy and global financial system that relied so heavily upon debt.”