Those who went to stock up on gasoline this Monday probably ran into a gallon for $ 4 at service stations in the United States. A price that has not been paid since 2008 and that analysts believe may rise even more in the midst of the war in Ukraine and a conflict where the invader, Russia, is one of the largest suppliers of oil and gas in the world.
The brutal invasion of Moscow has led the United States and Europe to evaluate something unthinkable a few months ago: imposing an embargo on Russian oil and natural gas as punishment. Just the mere possibility of that happening sent the price of Brent oil — the market benchmark — skyrocketing to $140, its highest level in 14 years.
Is there a consensus to cut Russian oil purchases?
At the moment it seems more likely that this ban will come only from Washington. And that would have in practical terms a moderate impact on the world market, because the oil and refined products that the United States imports from Russia represent less than 10% of all that the country consumes.
Secretary of State Antony Blinken said they were evaluating it and a group of lawmakers is moving ahead with a bill to ban energy purchases from Russia. It is a measure that has been resisted for now due to its impact on crude oil prices and, consequently, on gasoline prices and on the accelerated inflation in the United States.
Ukrainian President Volodymyr Zelensky again on Monday called for an energy embargo in order to strangle the Russian economy and break President Vladimir Putin’s wrist. Russia exports about 7.5 million barrels of oil and refined products every day, which are crucial because they finance about 40% of its budget.
How dependent is Europe on Russian supplies?
Secretary Blinken said the energy embargo was being discussed with allies in Europe. Those statements were what boosted oil prices on Monday morning.
However, a closure would not occur across the Atlantic at this time. Europe depends on Russian energy to move its economy and supply the needs of its population. It especially depends on its natural gas, which represents 40% of all the gas consumed there.
German Chancellor Olaf Scholz said on Monday that suspending purchases from Russia would put Europe’s energy security at risk. “Europe has deliberately dodged Russia’s energy supplies from sanctions. Supplying Europe with energy for heating, transport, electricity and industrial supply cannot be guaranteed in any other way at this time,” he said.
“Therefore, it is of essential importance to provide public services and the daily lives of our citizens,” he added in a statement.
And Europe probably won’t just cut off Russian oil purchases to prevent Moscow from cutting off its gas flow in retaliation. Replacing crude oil purchases is easier than replacing natural gas purchases. It is more common for a country to have refineries to treat oil, than plants to process liquefied natural gas, the supply with which the gas that runs through the pipelines could be replaced.
Can you relieve crude oil from strategic reserves?
Little bit. The International Energy Agency said last week that some 30 countries, including the United States, will release almost 62 million barrels of their strategic oil reserves. It is the largest such effort since that agency was founded in 1974.
However, those 62 million barrels can replace only about 12 days of Russian oil exports, close to 5 million barrels per day.
And then what would happen to the price of gasoline?
In the short term, it will probably remain close to the current level, the highest since 2008. This is because it will continue to be dragged down by the rise in the price of oil, which, according to analysts, would oscillate in the range of $120 and could climb towards $200 if what is expected worsens. It is already a bloody war.
“We consider $125 a barrel as our short-term forecast for Brent crude, although it may go higher” to $150, considered UBS analysts quoted by the Reuters agency. If a total embargo on Russian exports were to materialize, prices could skyrocket to $200 a barrel, Bank of America experts predicted.
With scenarios like these, the technology company specializing in fuel prices GasBuddy forecasts that the price of gasoline will reach an average of $4.25 in May and will remain above $4 until November in the United States.