There has been significant human, economic, and commercial fallout from Russia’s invasion of Ukraine. Supply networks, industries, and economies have all been impacted, along with people’s lives.
Like other sectors, the energy industry is currently functioning in an atmosphere of heightened uncertainty.
Prior to the full escalation of the war, oil prices were already on the rise around the world. Here, we take a closer look at how the Russian and Ukrainian war impacted the global oil trade, and how traders should respond.
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Oil price volatility
Crude oil prices on the international market jumped from roughly $76 per barrel at the beginning of January 2022 to over $110 per barrel on 4 March 2022 after Russia’s invasion on Ukraine.
Even before the conflict, the price of crude oil was inflated due to rising demand as economies throughout the world began to recover from the Covid-19 pandemic and as a result of a lack of investment in the oil and gas sector.
The gap between supply and demand was predicted to widen to 2% in 2022 when demand recovered following the loosening of pandemic restrictions.
European energy markets were hit particularly hard by the invasion of Ukraine because the continent continues to be Russia’s primary market for oil and gas.
Therefore, Europe is also Russia’s primary market, and the European Union recognises its reliance on Russia’s hydrocarbon industry.
The comm trading landscape for 2023
Oil is one of the world’s most valuable commodities due to its wide range of applications, but it is also one of the assets most susceptible to the influence of outside groups with vested interests.
Oil prices tend to react quickly and significantly to shifts in supply because of the small number of countries that control production. You shouldn’t worry about the impact, but rather use it to your financial advantage.
Consider the current crisis in Ukraine as an illustration. As a result of international sanctions imposed on Russia, one of the world’s main exporters of black gold, prices have risen to levels not seen in nearly ten years.
As most CFD traders using Khwezi Trade are aware, such price fluctuations present a significant opportunity. Oil prices are likely to remain high so long as tensions and sanctions are rising, but they are likely to fall in response to any significant and sustained rupture or reduction of sanctions.
Oil demand growth is forecast to outpace total supply growth in 2023 by a small margin. This indicates that prices will rise slightly from their current levels (by the end of 2022).
Escalating geopolitical tensions (which are still threatening) and the likelihood of a faster-than-expected economic recovery in China (should covid policy see increased and more permanent easing) are the key upside ‘risks’ to oil prices.
Oil demand is likely to fall as a result of the slowing economy in the United States as well as in Europe and the United Kingdom. According to OPEC, the most demand growth would come from developing countries like China and India.
In 2023, the growth of these economies is predicted to be between 5% and 6%. There is an opportunity (upside risk) for demand to grow if China’s crackdown on crime is relaxed even more by relaxing its zero-tolerance policy.