Global oil markets could tighten even more with Russian flows being disrupted and producers such as Libya experiencing supply problems, according to Vitol Group, the world’s biggest independent crude trader.
That could push prices higher still after they soared to more than $115 a barrel in the wake of Russia’s invasion of Ukraine.
“We have plenty of twists and turns to come,” Mike Muller, Vitol’s head of Asia, said Sunday on a podcast produced by Dubai-based consultant and publisher Gulf Intelligence. “While I think the world is already pricing in the fact there’ll be an inability to take in a serious amount of Russian oil in the western hemisphere, I don’t think we’ve priced in everything yet.”
His views echo those of several commodity hedge funds and Wall Street banks such as Goldman Sachs Group Inc., which says oil could reach $150 in the next three months.
The market could see “steeper backwardation,” Muller said, referring to a bullish pattern whereby near-term futures are more expensive than later ones because physical traders are rushing to secure supplies as soon as possible. The one-month time spread for Brent is already at the highest level of backwardation in at least a decade.
Crude surged last year as global economies and energy demand rebounded from the coronavirus pandemic. It’s up another 50% in 2022.
Energy exports have been exempted from U.S. and European sanctions on Moscow. But traders, shippers, insurers and banks are increasingly wary of taking on or funding purchases of Russian barrels. The country, which normally exports about 5 million barrels of crude every day, saw its Urals grade offered at record discounts last week.
“It is not illegal to purchase Russian oil yet,” said Muller. “However, the means to do so are being tightened.”
Still, some buyers are likely to follow Shell Plc, which bought a cargo of Urals on Friday, otherwise countries like Germany could suffer shortages, said Muller. Shell was criticized by Ukrainian officials but said it made the decision after speaking to unidentified governments and that it will donate profits from its Russian business to aid agencies.
“You’ll probably find that other companies engage with governments and get the ok to buy,” said Muller.
While the OPEC+ cartel has so far resisted calls from importers including the U.S. for faster production increases, that could change if prices continue climbing. The 23-nation group, led by Saudi Arabia and Russia, is raising output only gradually after historic cuts at the start of the pandemic.
“Surely the temptation will be there,” said Muller. “Managing inventories due to Covid is no longer the theme of the day. At some price they will say: ‘Ok, I think our Covid response from 2020 is history now and let’s get to focusing on the fundamentals of today’s market.’”