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Oil prices continued the rally and ended another volatile week. On the week closing, Brent crude price and WTI closed higher at $118.11 and $115.68 per barrel, respectively. Russian-Ukrainian crisis impact on the energy market seems to partially offset the earlier impact of the pandemic.
The latest figures from the Commodity Futures Trading Commission (CFTC) on March 1, 2022, showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) numbered 490,622 contracts, up by 17,483 contracts from the previous week (1,000 barrels for each contract).
Speculators are back despite the war and the economic sanctions on Russia. However, they want to take advantage of the prices’ sharp upward momentum. The increase in the longs might not be surprising since it was apparent that oil prices had to go higher when oil prices were at the $100 level. That’s when the speculators decided to re-enter the market after they had been shying away.
The global oil market had been already tight even before the Russia-Ukraine crisis, which further exacerbated the global oil market to be in the steepest backwardation seen in 33 years, a bullish market structure where prompt barrels are more expensive than the later months.
Oil prices skyrocketed despite the 62 million barrels that the IEA announced releasing from strategic petroleum reserves. SPR releases came at backwardation forward curve timing, which incentives traders and refiners to sell prompt barrels since sales values are now higher than the future months.
It is terrible timing for SPR releases as the steep backwardation incentives direct selling in the spot market. This causes further inventories depletion, which will delay compensating SPR barrels and rebuilding stocks any time soon.
Freight costs jump as shipping rates, insurance premiums soar because the shipping industry is currently going through a shortage of vessels amid sanctions on Russian fleets, which cause a sharp surge in tankers rates and insurance costs.
The bad timing for additional SPR releases within three months came also amid skyrocketing shipping rates that will most likely hinder those barrels from reaching Europe, where around 2.5 million barrels per day (bpd) of Russian crude shipped to Europe.
Energy Adviser (former OPEC and Saudi Aramco)