Why are US gas prices soaring when America barely uses Russian oil?

In the beginning, the West, including the United States, exempted Russian oil and gas from sanctions. The Biden government reversed its course on Tuesday by banning imports of Russian oil and other fuels into the United States, while the United Kingdom said it would phase out imports of Russian oil by the end of the year. (The EU is in a more difficult position because it is much more dependent on Russian oil.)

However, the initial lack of official bans did not matter much in terms of prices. There has been a de facto ban on Russian oil since the start of the invasion, with most of the country’s supplies remaining unsold.

This is because oil traders are incredibly nervous about touching things. There is a ton of uncertainty about the Russian oil market, whether it is the ability to conclude deals due to sanctions on Russia’s banking system or to find tankers willing to go to Russian ports amid risks from shipping to the war zone.

As a result, the main type of oil that Russia exports to Europe is offered for sale at a big discount because no one wants it. JPMorgan recently estimated that more than 4 million barrels a day of Russian oil have been virtually set aside.

Thus, investors are essentially pricing oil as if Russia’s supply is not available at all. Again, less supply = higher prices.

Why can’t other countries draw more?

The good old Covid strikes again. Nobody wanted oil in general in the spring of 2020, when global home orders meant that no one needed to refuel and get to the office. With a crater in demand, oil prices have happened as well – albeit briefly trading at negative prices.

OPEC +, in turn, has greatly reduced production to support prices. And since then they have maintained low production targets, only gradually adding up production, even when demand for oil and gasoline recovered earlier than expected.

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Guess who is a member of OPEC +? Russia. So yes, OPEC + is in no hurry to save. The Saudis have made it clear for months, even before the invasion, that the group has no plans to open the oil taps soon.

However, this iron solution may or may not break. In a tumultuous development this week, the UAE ambassador to Washington told CNN that the country wants to increase oil production and will encourage its OPEC + partners to do so. But later the UAE Minister of Energy and Infrastructure wrote on Twitter that the nation would abide by the OPEC + agreement and gradually increase production.

And then the Iraqi Ministry of Oil said that its leaders met and agreed that its partners in OPEC + should balance supply and demand to stabilize the market. At this point, who knows.

So why can’t US oil companies increase production?

Russia was the No. 2 oil producer in the world in 2021, pumping 9.7 million barrels a day – but the US is No. 1 with 10.2 million. US companies do not comply with these nationally mandated OPEC-type production targets. But US oil producers can not or will not fill the supply gap, even though they could create a mint because of high prices and demand.

Here again, Covid hits. Like many industries during the pandemic, oil producers struggle to find staff and specialized equipment. Meanwhile, US oil companies are still waking up to the pain of this major oil collapse in 2020, which started a bankruptcy turmoil. The returns of the shares of the big oil companies are lagging behind in the wider market since then. And as fossil fuel makers, they are wary that future environmental policies could hurt future demand for oil.

All of the above underscore the way in which oil and gas prices are linked to geopolitical events, the pandemic, drilling logistics and more. And it adds up the average U.S. gas price to more than $ 4.33 a gallon as of Friday.

In short, everything is a simple matter of supply and demand. But of course it is never that simple.

Why are US gas prices soaring when America barely uses Russian oil? Source link Why are US gas prices soaring when America barely uses Russian oil?

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