Released June 28, 2022 | SUGAR LAND
en
Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices on Monday were in a holding pattern as the G7 mulled its next steps in pressuring Russia, which may be set to default on its foreign debt for the first time in more than a century.
Leaders from the Group of Seven nations--Britain, Canada, France, Germany, Italy, Japan and the U.S.--are in the Bavarian Alps for their regular summit. Western allies will meet again later in the week for a NATO summit.
The invasion of Ukraine and the resulting shakeup of the geopolitical order are at the top of the agenda for both meetings. Already, the G7 moved to ban imports of Russian gold in an effort to curb what goes into the Kremlin's war chest.
On Monday, it was energy that was an issue for the G7. Natural gas, in particular, is a commodity that Russia can use as a political and economic weapon--but so is crude oil. Countering that requires close collaboration on energy security across the Western sphere of influence.
"We are also working together to find ways to further reduce Russia's energy-derived revenues in the coming months, to further curtail Russia's ability to fund its unprovoked war in Ukraine," G7 members said in a joint statement.
Russian commodities are still finding their way to the market, however. Landlocked European countries such as Hungary received concessions on Russian oil because they have few other alternatives. Russian barrels, meanwhile, continue to hit the water in the form of refined petroleum products.
Nevertheless, the pressure is adding up. Facing economic hardships in general, Western-backed sanctions make it difficult for Russia to carry out financial transactions, and it may be on the cusp of defaulting on some $40 billion in foreign debt. The last time that happened was during the Bolshevik Revolution more than 100 years ago.
Higher oil prices, however, could provide something of a cushion. The Western-backed sanctions that greeted Russia's invasion of Ukraine compounded a lingering supply-side issue that was boosting global inflation well before the war. West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, started the year at $74 per barrel, which was already a concern by then. WTI was trading closer to $108 on Monday, but was stuck in something of a holding pattern after data on U.S. durable goods orders surprised on the upside.
Nevertheless, the prevailing sentiment for the short-term is for a higher-for-longer outlook for crude oil prices.
Click on the image at right for a graph from the U.S. Energy Information Administration (EIA) detailing WTI crude oil prices, compared with the EIA's various outlook scenarios.
A survey of executives from 134 oil and gas firms by the Federal Reserve Bank of Dallas found the average consensus on year-end WTI was $107.93 per barrel. That estimate is some 15% higher than when the Dallas Fed last asked that question in the first quarter.
Higher commodities have become the scapegoat for a global constituency dealing with the inflationary pressures of war. And that's because energy, at least in the U.S. economy, accounts for around half of the general increase in prices.
The U.S., meanwhile, is among the few oil and natural gas producers that can make any meaningful impact on the market. U.S. President Joe Biden and his energy secretary, Jennifer Granholm, have pressured the domestic energy sector for most of 2022 to get to work, crafting sector performance as an honorable duty during war times.
But energy companies are beholden to their shareholders, not the federal government, and those shareholders want to see capital returns more than they want to see cheap oil. It's not until 2023, meanwhile, that crude oil prices are expected to dip below $100 per barrel--and just barely. The Energy Department anticipates WTI will average $93.24 per barrel next year.
Even still, oil is flowing. Italian energy company Eni can proceed with energy sales to Europe from Venezuela, and Iranian nuclear negotiations are expected to resume. Norwegian consultancy Rystad Energy, meanwhile, expects U.S. crude oil exports to hit an all-time high of 3.3 million barrels per day (BBL/d) during the second quarter.
Higher energy prices may continue to support producers and drillers--as well as rogue regimes--until that moment materializes when demand destruction sets in, be it by the market's own doing or by the very monetary policies meant to dampen inflation.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Leaders from the Group of Seven nations--Britain, Canada, France, Germany, Italy, Japan and the U.S.--are in the Bavarian Alps for their regular summit. Western allies will meet again later in the week for a NATO summit.
The invasion of Ukraine and the resulting shakeup of the geopolitical order are at the top of the agenda for both meetings. Already, the G7 moved to ban imports of Russian gold in an effort to curb what goes into the Kremlin's war chest.
On Monday, it was energy that was an issue for the G7. Natural gas, in particular, is a commodity that Russia can use as a political and economic weapon--but so is crude oil. Countering that requires close collaboration on energy security across the Western sphere of influence.
"We are also working together to find ways to further reduce Russia's energy-derived revenues in the coming months, to further curtail Russia's ability to fund its unprovoked war in Ukraine," G7 members said in a joint statement.
Russian commodities are still finding their way to the market, however. Landlocked European countries such as Hungary received concessions on Russian oil because they have few other alternatives. Russian barrels, meanwhile, continue to hit the water in the form of refined petroleum products.
Nevertheless, the pressure is adding up. Facing economic hardships in general, Western-backed sanctions make it difficult for Russia to carry out financial transactions, and it may be on the cusp of defaulting on some $40 billion in foreign debt. The last time that happened was during the Bolshevik Revolution more than 100 years ago.
Higher oil prices, however, could provide something of a cushion. The Western-backed sanctions that greeted Russia's invasion of Ukraine compounded a lingering supply-side issue that was boosting global inflation well before the war. West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, started the year at $74 per barrel, which was already a concern by then. WTI was trading closer to $108 on Monday, but was stuck in something of a holding pattern after data on U.S. durable goods orders surprised on the upside.
Nevertheless, the prevailing sentiment for the short-term is for a higher-for-longer outlook for crude oil prices.
Click on the image at right for a graph from the U.S. Energy Information Administration (EIA) detailing WTI crude oil prices, compared with the EIA's various outlook scenarios.A survey of executives from 134 oil and gas firms by the Federal Reserve Bank of Dallas found the average consensus on year-end WTI was $107.93 per barrel. That estimate is some 15% higher than when the Dallas Fed last asked that question in the first quarter.
Higher commodities have become the scapegoat for a global constituency dealing with the inflationary pressures of war. And that's because energy, at least in the U.S. economy, accounts for around half of the general increase in prices.
The U.S., meanwhile, is among the few oil and natural gas producers that can make any meaningful impact on the market. U.S. President Joe Biden and his energy secretary, Jennifer Granholm, have pressured the domestic energy sector for most of 2022 to get to work, crafting sector performance as an honorable duty during war times.
But energy companies are beholden to their shareholders, not the federal government, and those shareholders want to see capital returns more than they want to see cheap oil. It's not until 2023, meanwhile, that crude oil prices are expected to dip below $100 per barrel--and just barely. The Energy Department anticipates WTI will average $93.24 per barrel next year.
Even still, oil is flowing. Italian energy company Eni can proceed with energy sales to Europe from Venezuela, and Iranian nuclear negotiations are expected to resume. Norwegian consultancy Rystad Energy, meanwhile, expects U.S. crude oil exports to hit an all-time high of 3.3 million barrels per day (BBL/d) during the second quarter.
Higher energy prices may continue to support producers and drillers--as well as rogue regimes--until that moment materializes when demand destruction sets in, be it by the market's own doing or by the very monetary policies meant to dampen inflation.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
