The global market fell sharply oil prices. The European benchmark grade Brent fell by more than $10 compared to last week. On Thursday, March 16, by the end of the stock day in Europe, a barrel cost about $74.5 after volatile trading. This is the lowest level in the last 15 months, since December 2021.
Russian revenues will fall by the beginning of the Ukrainian counter-offensive
As a result, the gap between current quotations and those introduced by Western countries has significantly decreased. price ceiling for Russian oil at 60 dollars. This will inevitably lead to calls to revise it downward. And they already sound. “We are in favor of revising the price ceiling for crude oil, significantly reducing it,” Estonian Foreign Minister Urmas Reinsalu said at a press conference in Tallinn on Thursday, Interfax news agency reported.
But even if the price ceiling is not promptly lowered – in any case Asian buyers of Russian oilWhether they observed it or not, they will now give much less for Russia’s main export commodity than at the beginning of March. Unless, of course, quotes quickly return to the range of $80-90, where they have actually been since December. There is no question of a return in the coming months to last spring prices of $100-130.
So the prospects for replenishing the Russian budget with petrodollars, whose deficit was growing rapidly in January-February, now largely depend on events that many international media, including German ones, have already dubbed the banking crisis.
Exactly bankruptcy of the American financial institution Silicon Valley Bank (SVB) at the end of last week and in the middle of the current need for emergency measures to support the Swiss industry giant Credit Suisse are the main reason for the collapse of oil prices. The Brent chart clearly shows how the sell-off in contracts picked up speed on Monday, March 13, and accelerated sharply on March 15, Wednesday.
In Russia, the Treasury Department, the Defense Ministry, and the gloating media should really wish the success of the central banks and the governments of the “unfriendly countries” of America and Europe. After all, if they fail to quickly stabilize the situation in the banking sector, then Russian oil revenues, already significantly reduced, will fall even more. Moreover, it is likely that the hole in the budget will grow greatly just in time for the moment when Ukraine launches a big spring-summer counteroffensive to liberate its territories, and Moscow will really need money.
How the banking crisis affects the oil market
The German newspaper Frankfurter Allgemeine Zeitung explains the close relationship between the banking crisis and oil prices in an article under the heading “Fear presses on oil prices.” This refers to the fear of a new global financial crisis, like the one that erupted in 2008 after the bankruptcy of the American bank Lehman Brothers. It caused a deep recession in many countries at that time. If this happens again, “demand for oil will also collapse,” said Frank Schallenberger, an analyst at the German bank LBBW, a commodity market, in an interview with the newspaper.
However, for the time being, the majority of Western experts proceed from the fact that the current acute problems of several banks will not lead to a major financial crisis and recession in Western countries. But the incident has already alerted international investors, said another source of the newspaper – an expert on the oil market of the Swiss bank UBS Giovanni Staunovo (Giovanni Staunovo).
He recalled that oil contracts are one of the forms of investing money, and such contracts, like shares, are very sensitive to market sentiment. “Apparently, an earthquake in the banking sector is unlikely to affect the demand for oil and its production, but investors prefer to sell risky assets during such periods and invest in assets that are considered reliable,” the UBS expert said.
Carsten Fritsch, a commodity analyst at German Commerzbank, agrees with him. In his opinion, at least in the coming days, “fundamental data will most likely play a secondary role.” In other words, in the oil market, investors and speculators will pay little attention to such factors as, for example, Russia’s intention to cut oil production from Marchwhich, in theory, should have contributed to the rise in prices.
The role of the dollar and the American grade of oil WTI
The banking crisis and especially the problems of the European bank Credit Suisse led to an increase in the world currency market of the US dollar, which in such cases is considered a “safe haven”. According to the German financial portal finanzen.net, the strengthening of the US currency contributes to lower oil prices: “Since crude oil is traded for dollars, a higher rate leads to higher oil prices for buyers from other currency areas. This constrains demand.”
At the same time, the increase in crude oil inventories in the US, which was reported on March 15, did not affect the quotes, according to finanzen.net, as it coincided with the expectations of market participants.
In turn, the German portal of exchange information onvista.de indicates that in the course of a strong decline in recent days of quotations of the American WTI benchmark oil (on March 16, a barrel cost less than $67 during trading), an important level from the point of view of technical analysis was broken support. After such a signal, many stock speculators can start a bear game.
In Germany, the banking crisis is being watched with increased attention, but the government emphasizes the stability of the German financial system. At the same time, the collapse in oil prices is perceived with obvious relief: it will slow down inflation and has already caused further price cuts for petrol and dieselas well as oil products used for home heating.
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