Crude oil at lowest since April; Brent at USD 103 and WTI dips below USD 100

Immediately following Russia’s invasion of Ukraine on 24 February 2022, crude oil prices increased on fears of supply disruption. In less than two weeks, Brent prices rose from USD 97/barrel to USD 128/barrel. Since then, Brent prices have consistently been above USD 100 and above USD 110 since mid-May. On 5 July, Brent dropped to USD 102.77 and WTI ended at USD 99.50. Some analysts now predict even lower prices before the end of the year.

“Bunker prices have naturally followed crude prices upwards and in Rotterdam the prices remain at USD 27/tonne and USD 194/tonne higher than pre-war prices for HSFO and VLSFO respectively,” says Niels Rasmussen, Chief Shipping Analyst at BIMCO.

In Rotterdam, the premium over pre-war prices peaked in early March at USD 207/tonne and USD 336/tonne for respectively 380HSFO (high sulphur fuel oil) and VLSFO (very low sulphur fuel oil).

The high bunker prices have increased both shipping and operating costs, especially on ships without scrubbers and which require VLSFO to operate. Crude futures are, however, now indicating that this recent price reduction will stick.

“According to MABUX, Brent futures for September and October are trading in a USD 100-104/barrel range while August and September futures for WTI are trading in a USD 97-100/barrel range,” says Rasmussen. “Citi analysts’ base case meantime predicts that Brent will fall to USD 85/barrel by the end of 2022.”

Uncertainties about the oil market remain high and price predictions vary wildly – from Citi’s low case at USD 65/barrel to JP Morgan Chase’s high case at USD 380/barrel, while the consensus appears to be for prices to remain at around USD 100/barrel.

A global economic recession would lower demand and cause prices to go as low as USD 65/barrel assuming supply stays up. On the other hand, the EU ban on Russian oil could lead to retaliations by Russia and lower supply by as much as 5 million barrels per day and push prices to as much as USD 380/barrel.

“Shippers and shipping companies will normally agree that lower crude and bunker prices are to be preferred, however, right now most will probably be happy for crude to stay around USD 100/barrel as much lower prices will be a reflection of adverse global economic developments that help no one,”
says Rasmussen.
Source: BIMCO, By Neils Rasmussen, Chief Shipping Analyst