Oil prices are climbing to multi-year highs as the ongoing conflict Russia has embroiled itself in is preventing it from exporting a vast supply of crude, causing a ripple effect on global oil supplies.
Russia is the second-largest producer of oil in the world. According to 2020 data from the Energy Information Administration, Russia produced over 9.8 million barrels of oil per day, second only to the U.S. daily oil production of over 11.3 million barrels per day.
It is also the world’s largest exporter of crude oil and refined oil products, with about seven million barrels-worth of crude oil and refined oil products exported per day, about half of which go to Europe. (Related: Russia selling crude oil at massive discounts as regional conflict turns away regular trading partners.)
American stockpiles of crude oil are also at multi-year lows, contributing to the surging global price of crude oil.
Brent crude oil prices climbed to $119.84 per barrel on Thursday, March 3, the highest since 2012. Brent crude is one of the world’s main benchmarks for determining the price of oil.
In the past 30 days alone, the price of Brent crude has surged by about 37 percent. Brent crude’s six-month futures also rose on Thursday to more than $21 a barrel. This is an indication that investors and economic analysts do not believe oil supplies will recover to pre-Ukraine invasion levels in the next few months.
The price of U.S. West Texas Intermediate crude, another benchmark for oil prices, also rose to a 14-year high of $116.57 on Thursday before settling to an end-of-day price of $113.12. This is still a 2.3 percent increase from the previous day’s price of West Texas crude.
Price of crude oil to keep rising as Russia-Ukraine conflict continues
The recent price surges for crude oil came after the United States passed a fresh round of sanctions. The latest economic attacks against Russia specifically targeted the country’s lucrative oil refining sector. This raised concerns from analysts and traders that Russian oil and gas exports could be targeted next.
America and its allies in the West are using sanctions to try and stop Russia from continuing its invasion of Ukraine. The White House has so far stopped short of directly targeting the country’s oil and gas exports, which would have a significant impact on global oil markets as well as U.S. energy prices.
The current sanctions will still have an impact on Russian oil exports. Jarand Rystad, CEO of Norwegian energy consulting company Rystad Energy, predicted that Russian oil exports will plunge by around one million barrels per day due to the indirect impact of the sanctions and by companies all over the world voluntarily withdrawing their business relations with Russian corporations.
“Oil prices are likely to continue to climb – potentially beyond $130 per barrel,” said Rystad.
Speaking to CNBC’s “Squawk on the Street,” ExxonMobil CEO Darren Woods warned that crude oil prices could keep surging.
“If there is a significant supply disruption with respect to Russian crude … that will be very difficult for the market to make up and therefore that will lead to, I think, significantly higher prices,” said Woods.
The ExxonMobile CEO added that his company is shutting down its Russian operations. In a statement released on Tuesday, March 1, the oil giant said it would make no further investments in Russian oil prospects and all of its ongoing projects in the country would be halted.
This came after BP and Shell also said they would divest their assets in Russia.
“Our business engages significantly with the government, the host governments where we operate. We felt like the decisions that were being made by the Russian government with respect to its incursion in Ukraine were inconsistent with our philosophies and how we run our business,” said Woods.
The Russian invasion was the “tipping point” in terms of working with the Kremlin, said Woods, but he added that ExxonMobil may reopen its operations in Russia at a later date.
“We’ll keep an open mind,” he said. “Things would have to change pretty significantly, frankly.”
To make up for the shortfall in oil production, Woods said ExxonMobil is “maximizing production” in its other oil fields, including expanding drilling operations in the Permian Basin – a large oil-rich area in West Texas and Southeastern New Mexico.
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Learn more about the current state of the global oil industry at MarketCrash.news.