EU’s new curbs on Russian oil to dent global supply
Oil prices will remain elevated through the summer as Europe ramps up its embargo on Russian oil, says Moody’s Investors Service.
Last week, the European Union announced an agreement to ratchet up its trade restrictions on Russia by phasing out seaborne imports of Russian oil.
In a new report, Moody’s said these additional trade restrictions, which cover about one-third of Russia’s total crude exports, “increase the risk of rising oil and fuel prices over the summer months.”
The ban’s ultimate effect on global oil markets “will be determined by the extent to which Russia is able to reroute its crude to other markets before the end of the year,” the report said.
If those efforts are unsuccessful, Russia may have to cut oil production by around 1 million barrels per day, it said.
“The risk of such a significant cut in supply from Russia is pushing oil prices up, given relatively low level of spare capacity available at OPEC and strong seasonal demand for oil,” Moody’s said.
Looking further out, Moody’s expects prices to decline by year end, as seasonal demand eases and economic growth slows.
“High prices will slow growth in demand for oil in 2022-23 in step with a broader slowdown in economic growth, and will complicate the job of monetary authorities,” the report said.
“The resulting supply side pressures coupled with tighter monetary and financial conditions will weigh on economic activity,” it added.
Additionally, Moody’s said that the U.S. release of added supply from its strategic reserves, and a planned production increase in July and August by OPEC, should help “reduce price volatility over the summer months.”
“We expect oil prices to gradually edge lower from current levels, but remain above US$100/barrel over the rest of this year because of the increased geopolitical risk premium, even as oil market continues to adjust to trade restrictions and reduced levels of supply,” it said.
Source: Investment Executive