The normalisation of diplomatic relations between the two Middle Eastern powerhouses is a bearish event for flat prices. The main impact is going to be seen in the Yemen war, removing some risk premium due to higher costs of insuring Saudi oil cargoes and its onshore infrastructure’s exposition to attacks. In the long run, the deal could also result in more production from Iran and Yemen. Finally, it is an essential foreign policy success for China but is yet to mark the beginning of a new era.
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As oil prices soar to new multi-year highs, US consumers are having to deal with rising gasoline prices along with widespread inflation elsewhere. While the US administration appears unwilling to stimulate and incentivize domestic oil production, comparatively cheap natural gas is giving refiners one less cause for concern.
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The Russian war in Ukraine is in its seventh day and financial sanctions on Russian individuals and banks are set to cripple the financial sector. Energy exports have not been the target of sanctions and even though the effect has made buyers and shippers wary, trade volumes have been unmoved so far as current loadings would have traded and had vessels fixed before the invasion. But, with Urals hitting a new record discount to Brent, finding buyers over the coming weeks is set to become increasingly difficult.
While a full ban on Russian oil exports would undoubtedly have a severe impact on the Russian economy, it would also cause widespread disruption to the global oil market. Europe would be the worst affected, relying on both Russian crude and product to a large extent.
In this update Alex Booth, Kpler's Head of Research comments on the developments through the day in Ukraine and the potential market and geopolitical ramifications.
