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World oil market will be tightened by Russia disruptions

The one-month timeframe for Brent is already at the highest level of delay in at least a decade

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Global oil markets could tighten further with Russian flows disrupted and producers like
Libya experiencing supply problems, according to the Vitol Group, the world’s largest
independent crude sales company.
That could push prices even higher after they soared above $115 a barrel in the wake of
Russia’s invasion of Ukraine.

“We have a lot of twists and turns to come,” Mike Muller, Vitol’s Asia director, said Sunday
in a podcast produced by Dubai-based consultant and publisher Gulf Intelligence.
“While I think the world is already discounting the fact that it won’t be possible to absorb a
significant amount of Russian oil in the Western Hemisphere, I don’t think we’ve
discounted everything yet.”
His views echo those of several commodity hedge funds and Wall Street banks such as
Goldman Sachs, which says oil could hit $150 in the next three months.

The market could experience a “steeper pullback,” Muller said, referring to a bullish
pattern in which short futures are more expensive than later ones as physical traders rush
to secure supplies as soon as possible.
The one-month timeframe for Brent is already at the highest level of delay in at
least a decade.
Crude rose last year as world economies and energy demand recovered from the
coronavirus pandemic. It’s up another 50% in 2022.

Energy exports are exempt from US and European sanctions on Moscow. But
traders, shippers, insurers and banks are increasingly wary of taking on or financing
purchases of Russian barrels.
The country, which normally exports around five million barrels of crude every day, saw its
Urals grade offered at record discounts last week.
“It is not yet illegal to buy Russian oil,” Muller said. “However, the means to do so are
being restricted.”

Still, some buyers are likely to follow Shell, which bought a shipment from the Urals
on Friday, otherwise countries like Germany could face shortages , Muller said.
Shell has been criticized by Ukrainian officials but said it made the decision after
speaking with unnamed governments and will donate profits from its Russian business to
aid agencies.
“You’ll probably find that other companies engage with governments and get the goahead to buy,” Muller said.

While the OPEC+ cartel has so far resisted calls from importers, including the US, to
ramp up production faster, that could change if prices continue to rise.
The 23-nation group, led by Saudi Arabia and Russia, is increasing production only
gradually after historic cuts at the start of the pandemic.

“Surely the temptation will be there,” Muller said. “Inventory management due to Covid is
no longer the topic of the day. At some price they will say, ‘Ok, I think our 2020 Covid
response is history now and let’s focus on current market fundamentals.’”

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