| Dr. Gil Befman, Chief Economist, and Benyahu Bolotin, Economist, Leumi
| Development of the price of oil
The price of oil continued to rise in the last week: the price of type oil rose to about $ 97.59 a barrel at the end of the trading day on 11/2/2022 and the price of a type of barrel rose to about $ 94.15.
This rise in oil prices comes amid continued worsening geopolitical tensions between Russia and Ukraine and fears of a Russian invasion of the country, which could lead the US to impose sanctions on it and reduce Russian oil supply in the market.
| Global supply:
Saudi Arabia remains optimistic about the strength of global oil demand expected towards the end of the first quarter of 2022. This optimism has led to an increase in the premium for being vigorously marketed to its customers in Europe, Asia and the US.
OPEC Group estimates that demand for oil will also strengthen over the coming year and estimates that demand is expected to increase in 2022 by about 4.2 million barrels per day, an increase of about 4.3%.
Russia has announced that high oil prices could increase the country’s revenues in 2022 by about $ 65 billion. In her estimation, oil prices are expected to remain in their high environment and support government.
An examination of the Russian-Ukrainian conflict from an economic point of view may indicate that Russia has an interest in keeping the conflict on the global agenda in order to increase its revenues while avoiding civilian pressure, which would have increased at normal times due to high energy prices, through nationalist motives.
Raised its forecast for expected growth in U.S. oil production. It estimates that U.S. oil production will rise to 11.97 million barrels per day in 2022 and in 2023 a further increase is expected, so that oil production will average 12.6 million barrels per day annually. The highest level historically in terms of annual averages.
In the US it decreased in the week ending 2/4/2022 by 4.8 million barrels and reached about 410.4 million barrels, the level lower than in May 2018 and is about 11% lower than the average level in this period in the last five years.
The general decline in oil inventories in the United States also led to a decline in oil inventories in the reservoir, which has shrunk from the beginning of the year from about 37 to about 28 million barrels of oil.
| Global demand side:
Demand for car fuel in the U.S. rose in the week ending Feb. 4 from about 8.2 to about 9.1 million barrels per day. In doing so, demand converged back to the range of 8.9 to 9.6 million barrels per day, as they moved during most of the second half of 2021, as we expected.
On the other hand, the demand for jet fuel fell slightly, but remained high at 1.4 million barrels per day. These demands are relatively low probably due to the high morbidity.
Fuel prices in Asia are also rising, amid rising demand, tight supply and low inventory levels, leading to an increase in the marginal profit of Asian refineries that have reached a higher level than there was before the spread of the corona virus.
| The natural gas economy
Price in the US (Henry Hub) dropped last week to $ 3.96 per MMBTU. This, after an abnormal price volatility in the previous two weeks that led to a sharp rise in its price.
The price of gas in Europe () has fallen gradually in the last week and reached about 74 euros per MWh (about 24 dollars per MMBTU). This level is still very high compared to the price of European natural gas in the first half of 2021.
This is due to the shortage of natural gas in Europe resulting from a shortage supply of natural gas from Russia to Europe.
If a solution to the shortage of natural gas in Europe is found by supplying gas from other countries, alongside continued shipments from the US, the US administration will have a better basis for imposing sanctions on Russia which may prevent it from invading Ukraine extensively.
Tensions between Russia and Ukraine raise the chances that the crisis in the European natural gas market will continue in the near future, possibly until the end of the winter season, and it is expected to take time for European natural gas prices to return to low levels in Europe’s.
If tensions are resolved through diplomatic channels, Russia will return its natural gas supply to Europe and the price of European natural gas is expected to fall.
| Expect medium term:
The OPEC + group is expected to increase oil production in March, in line with a decision made at its last meeting, and there may also be further relief in production quotas in April which will increase oil production by an additional 400,000 barrels per day.
The rise in morbidity in the current wave does not appear to have significantly hurt energy demand, and the continued recovery in OPEC +’s supportive economic activity has eased production quotas.
The recent rise in oil prices is mainly due to tensions between Russia and Ukraine. Russia’s invasion of Ukraine could lead to Western sanctions on Russia, which could further raise the price of oil in the short term, depending on the intensity of the geopolitical escalation.
On the other hand, resolving the conflict diplomatically, if at all possible in the short term, and surprising the removal of the threat over Ukraine, can lead to a halt in the rise in the price of oil.
Progress in talks between Iran and the superpowers may ease the sanctions on the energy sector, which will increase oil supply in the medium term in the medium term while reducing the price of oil in the future.
Oil futures indicate a certain decline in price, in the first half of 2022 and a further decline during 2023.
PDF document: Leumi’s full weekly energy review
The writer is the chief economist of Bank Leumi. The data, information, opinions and forecasts in the review are provided as a service to readers, and do not necessarily reflect the official position of the Bank. They should not be construed as a recommendation or substitute for the reader’s independent discretion, or an offer or invitation to receive offers, or advice for the purchase and / or execution of any investments and / or actions or transactions. Errors may occur in the information and changes may occur. The Bank and / or its subsidiaries and / or companies related to it and / or the controlling shareholders and / or stakeholders in which of them may from time to time have an interest in the information presented in the review, including financial assets presented in it.