Let’s Talk… War, COVID Lockdowns and Russian Oil!

Despite Russia’s vague attempt to hide the true cost of their invasion of Ukraine, we can tell from various sources that the sanctions imposed on Russian oil are working. It turns out, you can view satellite images and see whether flaring is or isn’t happening to determine output. The flaring data, combined with anecdotal evidence from traders and information leaks, points to a sharp drop in Russian oil output since its pre-war level.

Here are some of my thoughts on what will influence oil prices in the future:

• First, I don’t think Russian oil is coming back online anytime soon, and I think it gets worse for them as countries that traditionally depend on them find ways to substitute Russian oil. 
• Second, COVID further plays into this. China locked down Beijing and Shanghai, its two biggest cities that power most of the nation’s economy to prevent a COVID outbreak. China still buys Russian oil, and what we know is when a city gets locked down, consumption drops considerably. 
• Lastly, oil prices will continue climbing higher. As oil supply contracts expire and Western refiners and traders continue to move away from Russian oil, this will be needed output that just won’t be part of the supply for a vast majority of countries. It’s the basic law of supply and demand. 

In the end, I don’t see an end to this conflict anytime soon. For the foreseeable future, the main ally of Russia and their oil supply is a country that will lock down cities of 20+ million people causing dramatic shifts in demand for a product that is in big demand.

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.