The ongoing Russia- Ukraine Conflict has ensured that oil prices will remain volatile in the coming few months. The WTI and Brent were trading at $107.9 and $111.1 respectively during the time of writing this article.
 

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Oil prices are generally influenced by two major factors, the supply- demand fundamentals and the ongoing geopolitical scenarios. Currently, both these factors are putting pressure on prices, but the situation may ease down in days to come because of the following reasons:

OPEC can take away some supply pressure created by sanctions on Russia 

Image Source: Oilprice.com

With Russia facing international sanctions, OPEC members like Saudi Arabia and UAE can use their spare production capacities to fill in the void that will be created on the supply side (refer the above chart for more details). The Russian sanctions can wipe off around 3 million barrels per day of crude oil supply from the global markets.  If OPEC members can pump out an additional 2 million barrels per day of crude oil, which I believe they will, then this will take away a major supply pressure off from oil prices and prices may quickly head back to the mid-90’s. Readers must note that it’s in OPEC’s financial and strategic interest to exert its influence on the global oil market by increasing its production. 

High oil prices often result in increase in marginal production and reduce in usage

Just as Saudi Arabia and UAE are planning to increase their oil production, the prospect of a $100 crude oil will tempt many U.S based producers to increase their marginal production, which will ease off some pressure from oil prices, once the panic and hysteria related to the Russia- Ukraine war begin to subside. Even in long term, the U.S based Energy Information Administration (EIA) forecasts the U.S crude oil production to rise in 2022 and 2023 to record levels. More details can be seen in the below chart. 

Image Source: EIA

Also, high fuel prices will discourage public to use cars and bikes (to some extent) and reduce the global demand growth in short term. 

Conclusion – Oil is still the king, at least for now.

The U.S government is already facing a lot of pressure to limit the current dramatic rise in crude oil prices. And the only practical solution to this is to increase its own domestic production, something that Joe Biden would not want and does not support! However, this issue is also related to America’s own energy security, which can be safe guarded only if new projects are allowed to develop. Even other countries like China and India are safeguarding their energy interests by making their own strategic moves. Look at India as an example. To safeguard its economy from the impact of high crude oil prices, India is buying cheap oil from Russia. India’s oil imports from Russia in March 2022 have increased by 4 times compared to last year. The U.S has already acknowledged that this move by India would not violate any U.S based sanctions. 

Several nations and oil majors, in recent times, have pledged to increase their green footprint and invest in sustainable businesses, and rightly so. However, what we have witnessed in last one month is that the world economy cannot afford to ignore crude oil, at least for the next few decades! When I analyze the current situation, and look at the supply-demand factors, I can confidently say that oil prices shall remain volatile and will come down below the $100 level mark very soon. However, if there is any further major escalation in the Russia – Ukraine conflict, then we can see new peaks in price levels, which will be mostly driven by fear and political uncertainty.