Tight supply and sluggish demand coexist with increased uncertainty in the crude oil market

On November 8, at the 11th China International Petroleum Trade Conference hosted by the Foreign Trade Development Bureau of the Ministry of Commerce in Shanghai, guests from international energy agencies analyzed this year's global crude oil price trends, energy market fluctuations and geopolitical factors
.

From the situation of the crude oil market in Russia and Ukraine, Argus' global oil head Youan Clark said that the most prominent trend is the contradiction
between tight supply and weak demand.
"Usually these two scenarios don't go hand in hand, the pandemic hit demand at the beginning, but now it's slowly turning into a supply crunch
.
" To some extent, he said, the situation in Russia and Ukraine also reflects this trend, and the supply crunch is now slowly turning into a demand crisis
.

Carlos Pascual, senior vice president and general manager of geopolitics and international affairs at S&P Global Commodities, believes that the Russia-Ukraine conflict highlights the lack of resilience of the international energy system to maintain the range of energy types and supply levels
required by the economic system.

At the beginning of this year, changes in the situation in Russia and Ukraine triggered a surge
in the prices of various commodities, including oil and gas.
Although the current situation in Russia and Ukraine is still affected, Russia is still exporting crude oil and refined products to the global market, but slightly adjusted the direction of flow, and Asian orders increased
.
Youan Clark believes that the situation will be more complicated in the future, because the EU's crude oil sanctions against Russia will officially take effect on December 5, when the import of Russian crude oil will be banned, and later the import of Russian refined oil
will be banned.
Most European countries and Russia have a strong interdependence on natural gas and crude oil, and European crude oil imports from Russia will be replaced
by other sources.

Carlos Pascual believes that the price ceiling set by the G7 on Russian crude oil is not actually a sanction, and the price set will reflect the marginal cost of Russian crude oil production, plus some form of profit, traders in various countries can freely buy Russian crude oil
.
The question is whether Russia will accept the eventual cap on oil prices, especially given the current intensifying
conflict between Russia and the West.

However, crude oil accounts for 40% of Russia's export earnings and natural gas accounts for only 10%, and if crude oil exports are reduced, the Russian economy will be hit more
severely.
In addition, Russia's crude oil storage capacity is not very large, and after the price cap takes effect, if Russia stops exporting, the storage problem of crude oil will lead to higher
production costs.
"If Russia is rational enough, it will not stop the supply of
crude oil.
" Youan Clark said
.

On a larger scale, Clark said that on the demand side, the demand crisis caused by the new crown epidemic has gradually recovered since the end of 2020, but the supply side has not responded quickly, and supply chain problems have led to higher prices, which in turn has triggered global inflation
.
The effect of global central banks raising interest rates to suppress inflation is not good, and the dollar exchange rate has reached a 20-year high.

In addition, the demand for crude oil will change with GDP growth, GDP growth will slow, and crude oil demand growth will also slow, but not zero
.
On the supply side, OPEC+'s promised increase in global oil supply has not been fulfilled, and the reduction in Russian crude oil production this year, coupled with production problems in West Africa, has made the overall crude oil supply of the market relatively tight
.

"Crude oil prices are likely to change dramatically in the coming months, and it's important to
build resilience in a turbulent time.
For example, the use of digital tools can maximize efficiency, reduce costs, and understand individual factors
throughout the price chain.
Carlos Pascual said the key is also to diversify supply sources, maintain multi-supplier relationships, and maintain strong partnerships with long-term suppliers to cope with changes
on the supply side.