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Brent Oil To Soar Amid Increasing Volatility

By Cristian Bustos. Originally published at ValueWalk.

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Brent oil is bound to see prices jump as volatility takes over markets. Brent, which fell moderately —0.4% to $104.19— after marking an intraday low of $102 and a high above $105, will soar amid the ongoing Russia-Ukraine conflict and lower production output.

Movements

Crude oil has fallen sharply in recent days after the U.S. announced Thursday the release of 1 million barrels per day from its strategic reserves over the next six months.


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Meanwhile, OPEC+ followed the script and announced an increase of 432,000 barrels per day, in line with forecasts. After this upsurge, it is estimated that production will reach 28.5 million barrels per day, although production levels are lower than those prior to the pandemic —30.4 million— but the demand in 2022 is expected to be higher than in late 2019.

In addition, the International Energy Agency estimates that, out of the 8 million per day that Russia exports, almost 3 million will stop being produced in the next month.

OPEC+ made no reference to the Russia-Ukraine war, and it only stated that the market is “balanced” and that the recent volatility is due to geopolitical factors.

Stockpile Release

The organization said in a statement, “We have to face a scenario of high prices for a long time due to the tension arising from the Russia-Ukraine war.”

“Added to this is the shortage of supply, among other reasons due to international rejection of Russian oil —the second producer. But also due to the reduction of investments in the sector in recent years.”

“As the Biden administration is taking a very strong stance toward Moscow, promising more sanctions if Russia continues to wage war in Ukraine, we believe the stockpile release is being used as a tool to cushion the impact of these policy decisions abroad for the U.S.,” RBC analysts said.

This would reduce the necessary amount of price-induced demand destruction, the only oil rebalancing mechanism currently available in a world with no inventory reserves and no elasticity of supply, according to Goldman Sachs Group Inc (NYSE:GS).

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