Energy Prices Soar as Russia Invades Ukraine Alex Mills Chronicle
Russia is in trouble.
Even if it defeats Ukraine, the response from governments around the world will hit Russia’s financial institutions and oil industry hard. Oil and natural gas exports are Russia’s “cash cow”.
Russia is one of the world’s largest producers. In 2021, it produced about 11 million barrels per day (bpd) of oil and exported about 7.5 million bpd. This will change.
Since the invasion of Ukraine, the number of buyers of Russian crude has dwindled to a few. Even if there are interested buyers, they will have difficulty moving and storing the oil.
Many traders have refused to do business with Russia since the invasion because there is confusion over what is legal and some fear repercussions.
The European Union, the United Kingdom and the United States, as well as many other countries, have invoked sanctions against Russian financial institutions, and some countries have sanctioned imports of crude oil from Russia.
The United States imported an average of 733,000 barrels a day from Russia last year. However, President Biden has said that the United States will not ban future imports of Russian crude into the United States.
Biden said in his State of the Union address that he will order an additional 30 million barrels of oil from the Strategic Petroleum Reserve. He also noted that other countries will also release 30 million barrels of their reserves, for a total of 60 million barrels.
This SPR release follows another recent release of 50 million barrels by the Biden administration. Data from the Energy Information Administration (EIA) shows inventories in the SPR fell to 580 million barrels from a high of 700 million barrels.
Biden said the release was an attempt to lower oil and gasoline prices, which fell from $76 on Jan. 3 to $110 on Wednesday.
Analysts point out that 30 million barrels will be absorbed quickly in a US daily market of around 20 million barrels per day. World oil consumption is around 100 million barrels per day.
International oil companies announced this week that they would no longer do business in Russia. Exxon Mobil said it would pull out of an oil production venture in Russia and stop making new investments in the country.
European oil majors BP, Shell and TotalEnergies have also announced their intention to withdraw from Russia.
OPEC met this week and voted to maintain its current production quotas, which call for an increase of 400,000 barrels per day. Although Russia is not a member of OPEC, it has been involved in its production discussions for several years.
OPEC was unable to meet its quota. The International Energy Agency reports a gap of 900,000 barrels between its target and actual production.
Some members of Congress have encouraged the Biden administration to change its policies toward the U.S. oil and natural gas industry that are designed to discourage future production.
The American Petroleum Institute (API) points out that the Biden administration could repeal, reverse or deepen many regulations.
API called for expedited approval of all LNG applications, continued support for crude oil and natural gas exports, and prompt completion of federal onshore and offshore leases.
Even though the sanctions are meant to create economic pain for Russia, the pain will be felt around the world as supplies dwindle and prices rise.
Alex Mills is the past president of the Texas Alliance of Energy Producers.