Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to the Expert magazine on the global oil market current state.
New risks for Saudi oil
Due to the military successes of the Houthis, the risk of blocking the Bab-el-Mandeb Strait increased, which caused an increase in oil prices. There is a high probability that the Houthis will do the same thing as Iran, i.e., shell individual ships, causing panic among shipowners and thereby sharply increasing the cost of insurance and freight. In the event of a negative development, Saudi Arabia may increase supplies through the Suez Canal, but some Saudi vessels, due to their displacement, will simply not be able to pass through there. In any case, the Suez route means supplies to Europe.
How much will oil cost
Over the past six months, the rise in oil prices has been restrained by the active use of reserves by Western countries and China, as well as a sharp decline in demand from the PRC. These factors remain relevant; although reserves are decreasing, they are far from being depleted.
In the coming weeks, I wouldn’t expect oil prices to rise above $120–130 per barrel. Most likely, in September, oil will be trading mainly around $100, but it’s unlikely to go above $110. However, a stable price of $120–130 may emerge closer to the end of the year if the shipping situation does not improve.
When will fuel demand start to decline
Oil prices of $90–100 are not so critical that oil refining will start to decline. However, if quotes firmly settle above $120–130, this will lead to a decline in demand. However, the process will be flexible, since transport consumes more than 60% of petroleum products, and it will not be able to quickly abandon gasoline and diesel fuel.
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