Oil prices a year after Russia’s invasion of Ukraine

The oil market looks very different today than it did a year ago when Russia invaded Ukraine.

“This is the most significant set of market distortions and distortions in energy markets as a whole that I have ever seen,” Ed Morse, global head of commodity research at Citi, told Yahoo Finance.

Prior to the February 24, 2022 invasion, Russia exported most of its oil and petroleum products to Europe, with a much smaller portion going to China, India and other Asian countries.

By the end of 2022, this ratio has completely changed.

“In terms of markets, he created two markets, transparent [oil] the market and the opaque market,” Morse said.

“Russian crude oil has just been reallocated from old customers in Europe to new customers in Asia,” Andy Lipow of Lipow Oil Associates recently wrote in a note to a client. “Europe’s energy divorce from Russia is almost complete.”

The latest in a series of sanctions against Moscow imposed by Western countries in response to the war was introduced earlier this month: they include an EU ban on the export of Russian oil products. Prior to this, the G7 introduced a cap on Russian oil prices in order to weaken the country’s treasury.

“The price restrictions introduced on December 5, 2022 on the export of Russian oil work in a roundabout way. The EU, US and other countries do not buy from Russia, which leaves Russia with a limited number of buyers. These customers are demanding lower prices,” Lipov said.

It is not every year that energy prices rise as rapidly as they did last year. A few days after the Russian invasion, West Texas Intermediate (WTI) reached a closing peak of $123.70 a barrel, while Brent oil futures settled at $127.98.

The Biden administration authorized releases from the US strategic oil reserve to drive down gasoline prices, which hit record highs by mid-June last year.

Eventually prices fell and today WTI is trading around $75/bbl and Brent is hovering around $82/bbl.

The reopening of China after strict COVID lockdowns is seen as bullish for energy prices going forward, but so far oil has mostly traded in a tight range.

“Oil has gone sideways as China’s expansion story struggles with the ‘recession around the corner’ story. It’s a dead end so far,” Stuart Glickman, energy capital analyst at CFRA Research, told Yahoo Finance.

Natural gas prices in both Europe and the US have also declined significantly from their peak levels. The energy sector, which had a successful 2022, is experiencing a dismal 2023.

“Energy prices have been relatively low this year as we have a very warm winter in both North America and Europe. The weather has caused natural gas prices and oil prices to plummet, putting pressure on energy stocks,” Jay Hatfield, CEO at Infrastructure Capital Advisors.

“Energy transition, seeing acceleration

Both the US and Europe have stepped up their efforts to move towards clean technologies through renewable energy as companies invest in solar, wind and biofuels.

The International Energy Association predicts that renewable electricity capacity in the EU will double between 2022 and 2027.

“The energy transition is clearly accelerating thanks to Russia/Ukraine,” Citi’s Morse says. “He was on his way, but he sped up.”

Ines is a Senior Business Reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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