Chart of the day - OIL (07.03.2022)

Oil prices launched new week's trading with big bullish price gaps. Prices started trading almost 10% above Friday's close. Brent for May delivery jumped above $130 per barrel while spot prices almost reached $140 per barrel. WTI jumped above $126 per barrel. Reason behind price gains is clear - risk of imposing oil sanctions on Russia and  consequences of such a move on global supply.

Russia accounts for 5 mbpd of oil exports and 3 mbpd of oil-derivative exports. It's around 7% of global supply, which could be a significant hit given that the market is currently balanced. It is possible to replace Russian supply with commodities from other sources but it will be neither cheap, nor quick process. On the other hand, countries such as India or China may want to take advantage of cheap Russian oil, what will free up some other supply for Western countries.

Nevertheless, impact of US ban on Russian oil may be largely symbolic as US imports of US oil are rather small and were slightly higher than 100k bpd last year. However, it could be a signal for other Western countries to follow suit.

However, it should be noted that the situation will stabilize sooner or later. Moreover, Iranian nuclear deal is within reach. Iran can have as much as 100 million barrels in offshore storage and it could be quickly used for exports. The United States also began talks with Venezuela on lifting oil sanctions. The United States also has a lot of dormant domestic supply. It is said there could be as much as 9,000 shale permits sitting idle. Current active oil rig count is slightly higher than 500 while record high was over 1,400 active oil rigs at the same time. US oil production is very profitable at current levels and it cannot be ruled out that it will start increasing soon.

Brent (OIL) jumped above 2012 highs. $125 per barrel area may serve as an important support now. Given high volatility on the oil market, attack on $150 all-time highs cannot be ruled out either. Source: xStation5