Oil race takes a breather; down more than 11%

International oil prices experienced a ‘crude’ session this Wednesday, marking the worst drop this year and with the Mexican export mix closing 11.41% down, at 105.97 dollars a barrel, amid concerns about interruptions in the supply for Russia’s invasion of Ukraine.

The European Brent barrel was the one that depreciated the most yesterday (-13.16%), ending with its worst day since April 2020, at a price of 111.14 dollars. For its part, United States oil, West Texas Intermediate (WTI), fell 12.13% to $108.70 a barrel, sealing its worst session since November 26, 2021.

The bullish crude prices had a break after yesterday they shot up to an all-time high of 123.70 dollars per barrel in the case of WTI, Brent reached 127.98 dollars per barrel and the Mexican mixture reached 119.62 dollars a barrel.

“The US and UK import ban on Russian oil is not a fundamental change. The world is not about to run out of oil, we are witnessing a price crisis rather than a supply crisis. Beyond the short-term uncertainty, we are confident that the rise in oil prices will follow more or less well-known patterns. Such sharp moves up usually follow moves down in weeks or months, not years,” says Norbert Rücker, Head of Next Generation Economics and Research at Julius Baer.

The specialist mentioned that direct sanctions began on Tuesday, March 8, after the United States and the United Kingdom prohibited imports of Russian oil and gas.

“This does not mean a fundamental change, the United States has been a marginal buyer of so-called raw oils, which it can probably easily replace. Similarly, the UK ban will only come into force at the end of this year, giving enough time to adjust supplies in a market that will look very different by then anyway,” Norbert Rücker said.

He added that what was surprising was the speed and determination of companies to isolate Russia, due to uncertainty and fear about existing and future political actions, and probably because of the ethical imperative to oppose aggression.

Yesterday, Wednesday, the actions of the oil companies had a bad day in the global stock markets. The issuers suffered from the drop in international crude oil prices and because in recent weeks some have announced that they would suspend operations in Russia, as is the case of Shell, Exxon Mobil and BP.

Meanwhile, in the session this Wednesday, Exxon Mobil fell 5.68% and Repsol 3.20%; while the titles of Saudi Aramco and Shell fell 2.91% and 2.69%, respectively. Chevron, meanwhile, and BP fell 2.50% and 2.22%, respectively.

For the Julius Baer specialist, the energy markets continue to be the focus of attention as the “geopolitical shock” unleashed by the war in Ukraine becomes an “economic shock”.

However, since the volumes and values ​​of energy trade between Russia and the world are far-reaching, the observed changes cause inflation and hurt corporate and household spending.

Yesterday it was also announced that US oil inventories fell by 1.9 million barrels in the week to March 4, to 411.6 million barrels, according to data from the Energy Information Administration (EIA).

As reported by the Reuters agency, the ambassador of the United Arab Emirates in Washington said that they support an increase in oil production and will encourage OPEC to consider greater production.

“We support production increases and will encourage OPEC to consider higher production levels,” Ambassador Yousuf Al Otaiba said in a statement tweeted by the UAE Embassy in Washington.

judith.santiago@eleconomista.mx