The impact of the Russia-Ukraine war on crude and Forex markets has been minimal to enormous. In this article, we’ll attempt to look at the impacts this conflict has created on crude and Forex markets.
Impact of the Conflict on Crude Oil
- On 24 February 2022 Russia launched a military invasion on Ukraine.
- Already inflated oil prices have since skyrocketed to over $110 per barrel.
- An expert discusses the impact on energy prices and the energy transition.
In late February, when oil prices were approaching $100, Maciej Kolaczkowski, Manager Oil and Gas Industry from the World Economic Forum’s Energy, Materials, Infrastructure Platform, explained the impacts on inflation and the key factors determining oil prices, how prices affect the global economy and the implications for the energy transition. He said that “no one had a crystal ball” and indeed one week later Russia started a war in Ukraine.
Here, we look into insights on how this has changed the dynamic on the energy market, what we might see in terms of the impact on consumer energy prices and how the energy transition fits into this changed context.
Impact of war
What has been the impact on oil prices of Russia invading Ukraine?
Prices of oil and gas increased sharply. Both major oil benchmarks are trading today at above $110. Thus represents further 15% increase over last week of February 2022.
Currently, energy exports are not subject to sanctions on Russia. Europe is seeking alternatives, with reports suggesting that refiners should avoid taking Russian oil supplies. At the same time Russia is still able to find a market for the majority of its production by offering discounts in the order of $15-20.
Clearly, the war continues to increase pressure in the system. Some analysts say that the risk of disruption to supplies has not yet been fully priced in and we may be poised for further run upwards.
On other hand, OECD countries are releasing 60 million barrels of oil – an equivalent of 12 days of Russian exports – from their strategic reserves to the market. The move is aimed to ease the price pressure, however as history shows such actions have only short-lived and limited impact on prices. What is released today will need to be replenished in the near future.
US ban on Russian oil imports
Another option could include releasing more from strategic reserves to the market. However as recent and previous actions show, this would have only short-lived and limited impact on prices. What is released today will need to be replenished in the near future.
Rising energy prices
How will this impact consumer energy prices?
Again, it is hard to predict which way the situation and markets will go, however it seems that we are poised for a period of high energy prices that are driven by war and combined with tight market fundamentals.
High prices are being passed over to consumers at the pump, in their gas, heating and electricity bills. And high energy prices contribute to increased cost of virtually all goods and services further fueling inflation expectations.
Impact on Forex Markets
Despite measures taken by US, the UK, the EU, Japan, Taiwan, Australia and New Zealand against Russia, Moscow continued to invade Ukrainian cities. The United States’ move to ban imports of oil and other energy products from Russia sent crude oil surging to close to $140 a barrel — the highest since the Global Financial Crisis of 2008.
EUR-USD outlook
Russia accounts for almost 25 percent of the EU’s oil imports and 40 percent of its gas imports. Inflation in the euro zone hit an all-time high in February. Higher energy prices pose smaller a threat to the US than to the euro zone. Stocks in Europe have entered a bear market, with the DAX, CAC and Stoxx 50 indices down more than 20 percent from recent highs.
The European Central Bank has sped up an exit from its pandemic-era stimulus program amid rising prices and sluggish growth.
Technical setup
GBP-USD outlook
Technical setup
Overall outlook
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