Oil prices continue to rise as supply concerns linger following the shutdown of two major oil facilities. An earthquake in Turkey recently caused the country’s main export terminal in Ceyhan to halt operations, which has the capacity to export up to 1 million barrels per day of crude oil. Meanwhile, the Phase 1 of the Johan Sverdrup oil field in the North Sea has also unexpectedly shut down.
Brent crude futures increased by 82 cents, or 1.01 percent, to reach $81.81 per barrel, while West Texas Intermediate futures rose by 82 cents, or 1.11 percent, to $74.93 per barrel. The Ceyhan closure and the shutdown of the Johan Sverdrup oil field have been identified as the main drivers behind the surge in oil prices by Daniel Hynes, senior commodity strategist at ANZ bank in Sydney.
In a note, Hynes pointed out that “signs of stronger demand boosted sentiment,” which is largely led by optimism surrounding China’s fuel demand. China is the world’s largest importer of oil and the International Energy Agency expects half of the global oil demand growth to come from China this year, with jet fuel demand surging. This sentiment has been reinforced by Goldman Sachs, which recently raised its forecast for China’s oil demand in the fourth quarter of this year to 16 million bpd, up 400,000 bpd from its earlier estimate. The investment bank also expects overall annual demand in 2023 to increase by 1 million bpd.
Supply concerns are also being exacerbated by the recent implementation of price caps on Russian products. The Group of Seven nations, the European Union, and Australia have agreed on limits of $100 a barrel for diesel and other products that trade at a premium to crude and $45 a barrel for products that trade at a discount, such as fuel oil. These price caps are a response to the rising prices and aim to alleviate the strain on consumers, but they may also have a significant impact on oil-producing countries and the industry as a whole.
The oil industry has faced multiple challenges in recent years, including the global pandemic and its impact on demand, and the ongoing tensions in the Middle East, which have disrupted supply. However, the recent earthquake in Turkey and the shutdown of the Johan Sverdrup oil field have brought new concerns to the forefront, particularly with the Baku-Tbilisi-Ceyhan terminal, which exports Azeri crude oil to international markets, being closed for some days while operators assess the damage caused by the earthquake.
In conclusion, the combination of supply disruptions and increasing demand is causing oil prices to soar, and the recent implementation of price caps on Russian products may add to the already heightened supply concerns. The industry continues to face numerous challenges, and it remains to be seen how these developments will play out in the coming months and how they will impact the global economy.