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Author: Grant Norwood

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Vladimir Putin and Xi Jinping. ALEXANDER NEMENOV / Getty Images© ALEXANDER NEMENOV / Getty Images

  • Europe’s ban on Russian oil will begin in December, and it could make an already-tight energy market worse. 
  • Global crude prices are set to climb as demand isn’t going down, but supplies are dwindling. 
  • Energy Aspects’ Livia Gallarati explained what comes next for the energy crisis and why oil prices could stay around $120 for two years. 

Oil markets are facing a slate of global risks in the months ahead that could propel crude prices to about $120 a barrel and then keep them there, according to Energy Aspects’ Livia Gallarati. 

Among the most near-term risks are European Union sanctions on December 5 that will ban seaborne Russian crude oil imports.

The abrupt drop-off in deliveries from Europe’s biggest energy supplier will likely cause a price spike for crude, Gallarati told Insider, and prices will face renewed pressure in February when the EU’s next set of sanctions on refined products like diesel kicks in.

“We see prices increasing to $120 by the end of this year,” she said. “And we don’t really see them decreasing significantly from this level for the next two years because we see a structural problem with supply.”

While Moscow has been redirecting crude to China and India, prices can still surge as the cost of transporting crude goes up. Europe will have to cut itself off from a long-standing source that’s just a few days’ sailing time away, and rely on more distant suppliers like the US and Middle East, Gallarati said.

In addition, Russia’s crude production is already 500,000 barrels a day lower and could lose another 1.5 million barrels a day early next year as the ban on fuels forces Russian refineries to accept less upstream output, according to Energy Aspects.  

Losing that high a volume from Russia for an extended number of months will deliver a huge blow to global oil supplies, and Gallarati said that poses the single biggest risk to markets. 

“We just don’t have enough demand and shipping capacity to move all of these barrels to other non-European markets,” she said. “Brent is going to be structurally higher and it will feed into pump prices for the consumers. There’s no doubt about that.”

At the same time, subsidies and tax incentives from Western governments intended to help people pay their bills will stoke demand further and prevent supply from catching up. 

“Market prices are going to go through the roof, and eventually somebody is going to have to pay the bill,” Gallarati warned. 

Other risks loom 

Separate from Europe’s sanctions on Russia, China’s reopening plans and US reactions to OPEC+ decisions can either keep oil prices muted or push them dramatically higher in 2023. 

So far this year, China’s zero-COVID approach has helped Europe because there’s been less competition for Russian energy supplies, as well as supplies from other nations. 

But if stifled demand in the world’s second-largest economy all of a sudden returns in force, prices could surge and global supplies could face additional snags, which would particularly impact Europe, Gallarati said. 

Meanwhile, the world’s other top oil producers — OPEC+ and the US — could add more uncertainty to markets. The oil cartel has slashed its production quota, lifting crude prices, and the US has been releasing crude from the Strategic Petroleum Reserve to bring them down. 

“OPEC’s been very protective of making sure there’s a floor to prices,” Gallarati said. “And now there’s been talk about limiting exports out of the US to the rest of the world. So what happens with these policies will be another big thing to watch for prices.”

Texas is America’s biggest oil-producing state and seeks to acknowledge the financial institutions’ fossil fuel investment procedures and policies. Texas Comptroller, Glenn Hegar, is questioning 19 major financial companies to clarify whether they are boycotting the fossil fuel industry. According to Reuters, this includes the world’s largest resource manager BlackRock and a few top U.S. banks, such as JPMorgan and Wells Fargo.
The Senate Bill 13 was passed on June 14, 2021 and effective on September 1, 2021 in the state of Texas. This new law declares that Texas state agencies that invest funds from investing in financial companies that boycott energy companies is prohibited.
To implement the bill, Hegar sent a letter of clarification to the 19 financial firms’ oil and gas stance.
“A company that fails to provide clarification 60 days after receiving this letter will be presumed to be boycotting energy companies,” the Comptroller’s office said in a statement on Wednesday, March 16.
“Numerous companies and their leadership are pushing an environmental and social agenda that not only threatens Texas economy and jobs, but also undermines national security. All of this comes at a time when Texas oil and natural gas should be playing a key role in supporting the American economy and providing security for our allies abroad,” Hegar continued.
Comptroller Hegar will be sending more letter to over 100 other publicly traded investment companies that appear to fund boycotting fossil fuels.
“These companies will be asked to list all of their mutual funds and ETFs that refuse to invest in fossil fuels. Responses collected from these entities will help finalize the Comptroller’s list of companies that boycott the fossil fuel sector,” the Comptroller’s office assured.

“Today, I’m announcing the United States is targeting the main artery of Russia’s economy. We’re banning all imports of Russian oil and gas and energy. That means Russian oil will no longer be acceptable at U.S. ports and the American people will deal another powerful blow to Putin’s war machine,” President Biden said in a White House announcement.

The invasion of Ukraine resulted in severe sanction responses from the US, the EU, and the UK in regard to the International SWIFT system which was only the beginning of cutting off Russian commodities. On Tuesday, the United States declared a ban on energy product imports from Russia without the inclusion of European allies. This ban consists of Russian oil, liquefied natural gas (LNG), and coal, says an anonymous source from Bloomberg.

President Biden understood that not every European ally is in the position to include themselves in sanctioning Russia’s energy supplies. Analysts say that if the West bans Russian oil, international crude prices can potentially reach $150 per barrel. Therefore, the full ban decision was considered in close consultation with its European allies.

So far, Western allies have abstained from sanctions on Russia’s energy exports due to the concerns of shortages in the oil market. Europe is more reliant on Russian oil than the US.

“Currently, there is no way to secure Europe’s supply of energy for heat generation, mobility, power supply, and industry,” German Chancellor Olaf Scholz says.