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Energy prices spiral out of control due to war in Ukraine

2022-03-03T04:19:49.031Z


Gas hits record highs and oil settles above 100 dollars, with more and more European importers refusing to buy Russian production


OPEC logo at the organization's headquarters, in Vienna. Ramzi Boudina (Reuters)

The fear of a cut in the Russian supply and the closure of several importers to the production from the country puts the energy markets in check again.

The price of natural gas shoots up more than 30% this Wednesday in the Old Continent, in parallel with the upsurge in fighting in Ukraine and after several European buyers have refused to close new contracts with the state gas company of the Eurasian giant, Gazprom.

The rise, however, went from more to less: in the initial section of the session, this fuel – essential for heating, electricity generation and industry – rose more than 50%, to close to 200 euros per megawatt hour and pulverizing the historical maximum beaten in mid-December.

This price is 10 times higher than that registered a year ago.

Oil draws a similar trajectory: despite erasing part of the rise in the final section of the session, Brent, the reference in Europe, climbs 3% this Wednesday and remains at the gates of 110 dollars per barrel.

As in the case of its younger brother, gas, the refusal of several importers to bring more crude from Russia has a great influence: according to a study by the specialized consulting firm Energy Aspects to which the British newspaper

Financial Times has had access

, 70% of the production of the Eurasian giant is not finding a buyer in the Old Continent.

"Only a few refineries and commercial companies are still in the market," point out the technicians of the American firm.

The last firm to stop buying Russian oil products as a protest against the invasion of Ukraine has been the Portuguese Galp: "We will not contribute to financing the war," says the president of the energy company in a statement.

The increases also extend to other products in which Moscow maintains a significant share of the world market.

Coal —a natural substitute for gas and crude oil for the generation of electricity— and aluminum —essential in many industrial processes and in construction— set all-time highs.

And nickel -transcendental in the transition towards renewable energies and key in the manufacture of batteries- climbs to unprecedented levels in more than ten years.

The rise in the price of raw materials has a direct impact on inflation, which is at levels not seen in decades, and puts pressure on both consumers and industry.

The rise in gas, for example, translates into a higher price of electricity - in Spain it will climb this Thursday to its third highest level ever - and a sharp increase in costs for the manufacturing sector, which is losing competitiveness by the minute forced against its American competitors.

And that of oil will almost certainly take both diesel and gasoline to a new maximum since there are records.

Crude oil exporters, in their thirteen

In the rise in crude oil, however, there is an additional ingredient: as much as it was taken for granted, the decision of the Organization of Petroleum Exporting Countries (OPEC) and its external partners - among them, Russia itself - to keep its supply intact by turning a deaf ear to the remarkable recovery in demand after the pandemic.

Nor the invasion of Ukraine, with the consequent sanctions imposed on the world's third largest oil producer.

Nor the escalation in the price of crude oil, at eight-year highs.

Nor the joint release of strategic reserves, announced the day before by the International Energy Agency (IEA).

Nor the growing risks of inflation — skyrocketing — on consumption and the growth of the economy.

Nothing, absolutely nothing, is capable of changing the pace of the cartel, which continues without moving an inch from its roadmap of gradually increasing pumping.

Much more gradual than a market would need in which the imbalance between supply and demand is greater with each passing day.

It has taken 13 minutes for the OPEC countries and their external partners, including Russia, to make the decision to keep their plan unchanged: to add 400,000 barrels every month since last summer despite the fact that market conditions are radically different from those what was there then.

That amount, less than 0.5% of world demand, is clearly insufficient to face a price escalation that is already among the fastest in history.

But it allows them to protect the enormous rents that an oil that rides above 110 dollars per barrel is earning them.

The tone, moreover, invites us to think that the refusal will continue at the end of the month, by when they have relocated.

"The current volatility in prices," argues the group, which controls more than 40% of world production, "is not caused by fundamental changes in the market, but by geopolitical events."

His denial of reality goes one step further: the market, the partners say in a statement published at the end of Wednesday's meeting, "is well balanced."

Not only the exact opposite of what all its actors believe, but also what literally skyrocketing prices indicate.

The cartel's refusal, for yet another month, to raise its production threshold is bad news for the main consumers, with the European Union, China and India in the lead —the largest net consumers of crude oil on the planet— and, to a lesser extent, , for the United States —which compensates for the strong blow to consumers with the revenues it obtains as the world's leading producer—.

Their prayers remain unanswered in the oil bloc.

According to the OPEC+ (or enlarged OPEC) plan, the volume of crude that this group – responsible for around 40% of world production – puts on the market will return to the pre-pandemic level in September of this year.

Everything, despite the fact that world demand will exceed the figures prior to the outbreak of covid-19 at the end of the year, according to IEA figures.

The joint pumping cap will continue at 41.7 million barrels per day: 24.3 million for the cartel countries in its original composition (just OPEC, led by Saudi Arabia) and the rest, 16.4, for its allies external, led by Russia.

Moscow keeps its supply ceiling unchanged at 10.4 million barrels per day, the same as Riyadh.


Source: elparis

All business articles on 2022-03-03

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