Crude oil again above $ 100 a barrel

On Tuesday both Brent crude oil and WTI became more expensive by over 6 percent and again exceeded the price of $ 100 a barrel. In recent days, the announcement of the release of global oil reserves has brought the price of the commodity below this limit. Now, however, information about the reduction in the intensity of the lockdown in Shanghai and further talks within the European Union about a possible embargo on Russian oil has raised its price.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Shanghai loosens the lockdown, oil demand is rising

Information from Shanghai about a loosening of the lockdown introduced in this city means that concerns about the level of Chinese oil demand will be reduced. In addition, the European Union is still talking about the introduction of an embargo on Russian oil, although representatives OPEC warn that this could cause a serious supply shock in the market. It is impossible to fully replace Russian oil with raw materials from other sources. The price of oil is also boosted by concerns about a new Russian offensive in Ukraine and a further escalation of the conflict.

Releasing the reserves only helped temporarily

The price of crude oil quickly rebounded after several days of decline related to the announcements of the release of its reserves. Last week, the US and other countries announced the release and sale of crude oil from Strategic Petroleum Reserve (SPR). The reserve release process will involve the US selling up to 1 million barrels of crude oil per day (equivalent to 1% of global oil demand) over a 6-month period. At the same time, an additional 60 million barrels of oil are sold from their reserves by countries associated with the International Energy Agency (Poland as an OECD member also belongs to it). The announcement of the release of reserves has brought down the price of oil only for a moment, and in the long run may even be counterproductive. There is not enough oil sold to fully offset the decline in Russian oil production, which amounts to 3 million barrels per day. In the long run, in order to stabilize, the market needs to constantly increase oil production or reduce the demand for this commodity.

The planned sale may bring US reserves closer to their minimum legal level. International Energy Agency requires states to maintain reserves of 90 days of their own net oil imports (i.e. the difference between oil imports and exports). In the case of the USA, the minimum level of reserves thus calculated is 315 million barrels. This means that the announced reduction in reserves within 6 months to 385 million barrels will leave a small safety buffer of only 70 million barrels. This may pose a problem in the face of additional threats, such as the possibility of a further decline in production in Russia (as a result of new sanctions or another offensive), limited flexibility of OPEC supplies (and even a reduction in production in response to the release of reserves) and delays in the oil production process. from shale in the USA.