Oil price reach record high

The price of oil reached a significant rise this Monday that had not occurred since 2014. The possible invasion of Russia to Ukraine and if this happens the sanctions that the United States and Europe would impose on the Putin government, would surely lead to a cut in crude oil exports.

Russia is currently one of the main oil exporting countries and the third largest producer, but if a war between them and the allies of the North Atlantic Treaty Organization (NATO) materializes, these exports would be affected.

It should be noted that the price of Brent (crude oil in the European market) this Monday reached 94.99 dollars per barrel, as well as the West Texas Intermediate (WTI) of the United States reached 93.95 dollars per barrel and is expected to exceed 100, up to 120 dollars if the invasion takes place.

World economic outlook

In October 2014, Brent reached its highest figure, reaching 96.16 dollars per barrel, while WTI reached 94.94 dollars in September of the same year. However, between the summer of 2007 and 2008, crude oil hit an all-time high of $140 a barrel. Given this, Henik Fung, analyst at Bloomberg Intelligence has expressed in this regard:

"Sanctions, if implemented, could reduce global crude supply. [...] Any shortfall in oil supply risks turning into higher prices in the short term, perhaps as high as $120 a barrel."

For his part, Volodymyr Zelensky, the president of Ukraine, has claimed to receive information from a reliable source stating that this very week they could be invaded by Russia.

“They tell us that February 16 will be the day of the attack (Russian against Ukraine). We will make it a Unity Day. The corresponding decree has already been signed”, expressed the maximum president.

Ukraine is, practically, the bridge that Russia uses to export crude oil to Europe and all this occurs in the context in which OPEC+, which are the countries allied to OPEC (Organization of Petroleum Exporting Countries), led by Russia, had agreed a production of 400,000 barrels per day (bpd) until March.

From January to date, Brent has increased 21%, while WTI has risen 26%. The International Energy Agency (IEA) has estimated that the balance between supply and demand for oil is going to be stressed and since last year it has been evident.

In its annual report, it stated that between October and December of last year they had to use 345,000 extra barrels than what they already had stipulated.

On the other hand, it should be noted that the conflict between Russia and Ukraine is not the only factor that has raised the price of a barrel, it is even estimated that if a war did not take place, it would continue to increase in the same way.

The truth is that it has been on the rise for months and among the factors that can be named are the limited reserves of crude oil and the stabilization of the economy and other activities that had been nationalized by the pandemic.

The latter brings as a consequence that consumption returns to levels before the pandemic and, thus, demand increases.