By Ana Beatriz Bartolo
June, 1st, 2022
Investing.com - Oil prices are on the rise again, with the market expecting more supply-side restrictions as demand tends to pick up. The expectation is that there will be a reorganization of the supply chain, which should raise commercial costs until the market balances out again, still at a high price level.
"Europe's embargo and China's partial reopening are fueling supply fears and driving up oil prices", analyzes Julius Baer in a report released this Wednesday, June 01. This scenario indicates a more lasting shortage in the oil market. The expectation is that rising production in the Middle East and the US should rebalance the oil market only later this year or next year, according to the document.
This week, China announced the easing of the lockdown that had been happening in Shanghai in recent months. The Asian country remains firm in its Zero Covid policy, which restricts mobility and the economy of relevant urban centers. With the virus under control for the moment and restrictions set to ease, it is expected that demand for oil in the region will rise significantly in the short term.
A little further west, the European Union has tightened its sanctions against Russia, because of the war in Ukraine, and has decided to stop importing oil from the country. An EU Commission spokesperson said the ban on Russian crude will be implemented within the next six months, while the ban on refined products will be implemented in more than eight months. Only oil deliveries via the Druzhba pipeline are temporarily exempted.
“When the embargo takes effect, 97% of refining capacity in Europe will be banned from buying Russian oil and less than 10% of normal Russian exports will continue to flow to the EU,” UBS explained in a report on the matter.
The Julius Baer report explains that this embargo should accelerate changes in oil logistics, with the EU looking for alternative suppliers. At the same time, Russia is directing its production to Asian countries, forcing its ships to make longer voyages to reach their final destination.
“This redirection in the supply chain, of course, creates friction, such as the formation of new commercial ties, longer voyages or ship-to-ship transfers on the high seas, which causes some loss of supply and increases commercial costs,” he says. to Julius Baer.
This scenario, by itself, already causes the price of oil to begin to rise. But as per Julius Baer, it is also necessary to take into account that the market is working more with perceptions than with concrete information.
“We see how European purchases are, in part, draining US oil storage, but we do not see whether Russian oil arrivals are increasing inventories in Asia due to lack of data,” explains the Swiss bank.
A matéria também foi publicada nas edições do Brasil e da África do Sul do Investing.com.