Oil Jumps More Than 5% On Wednesday As Risk of Supply Disruptions Grows

On March 23, international crude oil futures prices rose by more than 5%. The settlement price of the main U.S. WTI crude oil futures contract was reported at US$114.93 per barrel, an increase of US$5.66 or 5.2%; the settlement price of the main contract of Brent crude oil futures was reported at US$117.75 per barrel, an increase of US$5.92 or 5.29%. Brent's May contract once again rose above the $120 mark. Mainly due to the failure of Russia and Kazakhstan through the OPC Caspian oil pipeline, the export was interrupted, adding to the short-term supply shortage worries. In addition, a double drop in U.S. crude oil and refined oil inventories made supply expectations worse.

In the context of the war between Russia and Ukraine, the world's second-largest oil exporter Russia, the world's second largest oil exporter, has been hearing expectations of supply disruptions due to Western sanctions. Earlier, due to some progress in the negotiations between Russia and Ukraine, as well as the release of crude oil reserves by the International Energy Agency (IEA), oil prices once fell below $100. However, the recent Russian-Ukrainian negotiations have stalled, and the sensitive issue of the risk of future supply disruption has resurfaced. Oil prices have risen for five consecutive trading days.

On Wednesday, news of the Caspian pipeline failure sent oil prices reacting quickly, jumping sharply. According to Russian media reports, on March 22, the Russian Ministry of Energy said that due to the need for maintenance of the Caspian pipeline, crude oil exports through the Caspian pipeline may be reduced by 1 million barrels per day, and it may take up to 2 months to carry out maintenance. . This means that in addition to being affected by Western sanctions in the short term, Russia will lose more crude oil exports; it also means that the global oil supply will become more tight in the next two months.

In addition, Wednesday's U.S. Energy Information Administration (EIA) inventory data also brought positive oil prices. U.S. crude oil, gasoline and distillate inventories all fell last week. Data showed that U.S. crude inventories fell by 2.5 million barrels in the week to March 18 to 413.4 million barrels, compared with market expectations for an increase of 114,000 barrels. U.S. gasoline inventories fell by 2.9 million barrels to 238.04 million barrels, compared with analysts' expectations for a drop of 2 million barrels. Distillate stocks, which include diesel and heating oil, fell by 2.1 million barrels to 112.14 million barrels, compared with expectations for a decline of 1.4 million barrels. Crude and refined oil inventories fell more than expected, and refinery utilization rose, indicating that U.S. demand remained strong. This formed a strong support for oil prices.

Regarding the market outlook, the crude oil analysts of the business club believe that the current negotiations between Russia and Ukraine are difficult, and the Western sanctions against Russia are still increasing. Previously, the United States passed a bill against Russia's oil embargo, and the EU sanctions against Russia's oil embargo have always fluctuated. This is also the focus of the market. U.S. President Joe Biden left for Brussels on Wednesday to hold talks with European leaders on the Russia-Ukraine issue. The main content of the talks should still be sanctions against Russia, while exerting some pressure on the European Union. The market has generally expected that the Russian oil purchase ban has actually led to a supply disruption of 2-3 million barrels per day. The oil trade between the EU and Russia is a short-term contract. In the future, Russian oil exports will face great risks, which will also give Global supply brings greater risk exposure, and oil prices may continue to surge. But high oil prices will further weigh on demand, and the market should guard against the attendant risks.