In Moscow, they were again wrong in their forecasts: neither OPEC + nor the stock exchanges expected a sharp increase in oil prices due to Western sanctions.
The Kremlin again made a fundamental mistake in assessing the situation this year. Forecasts, according to which the introduction of the EU embargo on December 5 and the G7 price ceiling on oil from Russia will lead to a sharp increase in oil prices, did not come true. In any case, the first two days of the new punitive measures introduced because of the war in Ukraine did not have the effect that Moscow expected: world oil prices did not rise, but, on the contrary, fell. One might even say they fell.
Brent oil falls to $80
The chart of quotations of the European reference grade Brent for December 5 and 6 is very telling. On Monday, prices rose for the first time and exceeded $88 per barrel: speculators clearly decided to take advantage of the unusual situation and tried to play for an increase. However, in the middle of the day, they realized that there were no clearly expressed alarming expectations of a shortage of oil in the market, and they began to sell their positions.
As a result, at the end of Monday, only $83 was given for a barrel of Brent. On Tuesday morning, after a slight rebound, the quotes continued to fall and in the evening, at the time of publication of the article, they fell almost to the $80 mark. So, they are back to the level of the beginning of January 2022. In other words, oil is again equal to the value before the large-scale Russian invasion of Ukraine.
Recall that shortly after the start of the invasion, the price of Brent rose to $130, then for a long time, in fact, until the end of August, it remained above $100, from September to the middle of November it is in range. of $90-100, then it drops below $90. So, as the date of entry into force of the EU embargo approaches (it was announced six months ago), oil did not increase in price, but rather continued to become cheaper.
Oil is getting cheaper, despite winter and threats from Russia
Moreover, it happened against the backdrop of the approaching winter, when the consumption of petroleum products in Europe usually increases, because they, in particular, are widely used for space heating. In addition, this year in Germany, for example, many industrial enterprises began to actively replace natural gas with petroleum products as fuel for their factory power plants and production processes. Add to this the rapid recovery from the air travel pandemic, which, of course, necessitates an increase in demand for aviation kerosene.
Oil prices continued to fall even as Russia began threatening to withhold oil from countries that agreed to the price ceiling imposed by the G7 and Australia.
“The price of oil has fallen in recent months and, despite this threat, has not risen significantly,” said Marcel Fratzscher, head of the German Institute for Economic Research in Berlin, on December 5 in an interview to Reuters. “So the price ceiling for Russian oil seems to be a successful instrument for stabilizing global prices”. At the same time, under stabilization, Professor Fratsscher clearly understands the return of world quotations to a level acceptable for both consumers and producers, which is currently happening.
OPEC+ does not expect a strong increase in oil prices
In this regard, the reaction of OPEC + is very indicative. On Sunday, December 4, on the eve of the entry into force of the EU and G7 punitive measures, the leaders of this oil cartel, during an extraordinary video conference, decided to maintain production volumes , which was reduced by 2 million barrels per day in November , at current levels until the end of 2023.
So, the leaders of the oil and gas industry from the 23 countries that make up OPEC + sent a signal that they do not expect a sharp, destabilizing global economy, the rapid growth of oil prices any of the next week or next year. . They reinforced this signal, designed to calm the markets, by announcing the meeting of the next regular meeting just six months later, in June 2023. Although, again, to calm the markets, they immediately added that, if necessary, they were ready “at any time” to assemble for an emergency meeting.
In short, the cartel of oil exporters does not share the view of Dmitry Medvedev, Deputy Chairman of the Security Council of the Russian Federation, who predicted on December 5 that “the unthinkable will happen to oil prices.”
What do Germans think about the price cap experiment?
But to what extent will the EU embargo and the G7 price ceiling contribute to their goal of stopping the war in Ukraine, or at least significantly limiting Russia’s financial ability to continue it?
Marcel Fratzscher, head of the DIW institute, called it “an experiment with a good chance of success.” The Berlin newspaper Tagesspiegel speaks of an “experiment with unclear results”. A commentary in the German economic newspaper Handelsblatt headlined “Oil Price Ceiling Will Do What Other Sanctions Against Russia Can’t”. According to the author, “a hit to oil sales can have a faster impact” than other Western economic sanctions, which are more likely to have long-term consequences.
The newspaper Frankfurter Allgemeine Zeitung recalls that many experts believe that one of the main reasons for the collapse of the Soviet Union was the inevitable fall in oil prices. But this time, the author of the commentary believes, it is hardly worth hoping for a “similar result.” Probably, he believes, embargoes and price ceilings “are not very effective or completely ineffective.” However, it should be remembered that, in general, in Germany “they tend to overestimate Russia in all aspects,” the newspaper points out in a comment under the heading “Russian risk.”
If Brent oil prices after the fall on December 5 and 6 remain near $80 a barrel, the risks will increase for Russia, as many in the West, already criticize the $60 ceiling on Russian oil as too much high and comfortable for the Russian Federation, will probably require further reduction.
But there is another danger for Russia. Professor Marcel Fratzscher has already called on the German government to support those EU countries that demand the introduction of a price ceiling for Russian natural gas in order to “achieve a stronger reduction in gas prices and their stabilization. ” If the oil ceiling proves to be a successful tool, the number of such appeals will surely increase.
Source: korrespondent
I am David Wyatt, a professional writer and journalist for Buna Times. I specialize in the world section of news coverage, where I bring to light stories and issues that affect us globally. As a graduate of Journalism, I have always had the passion to spread knowledge through writing.