[Diesel Price Shock] Ukraine Crisis and Heatwave... "International Oil Prices Could Rise to $150"

International Oil Prices Fluctuate Around $110, Up 45% Since Early Year
Power Demand Already Surges Due to Heatwave in India and Southeast Asia
EU to Implement Ban on Russian Oil Exports Within Weeks
Goldman Sachs Warns Prices Could Rise to $150 if Risks Intensify

[Image source=Yonhap News]

As the Ukraine crisis shows signs of prolonged duration and international oil prices continue to soar due to sanctions against Russia, concerns are emerging that oil prices could surge again as summer electricity demand for cooling begins to rise. Experts warn that if the summer heat intensifies, international oil prices, currently fluctuating around $110 per barrel, could exceed $150 per barrel.

International oil prices, which surpassed $120 per barrel in March raising fears of a 'third oil shock,' have been trading between $100 and $110 per barrel this month amid consumption contraction forecasts due to recession concerns in major countries such as the United States and China. Nevertheless, prices have surged more than 45% compared to the beginning of the year.

On the 25th (local time) at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil closed at $110.33 per barrel, up 0.51% from the previous trading day. Brent crude also rose 0.39% to $114.03 per barrel at the London ICE Futures Exchange.

In the commodities market, concerns are growing that oil prices will face renewed upward pressure due to the Ukraine war surpassing three months and the expected increase in electricity demand for cooling during the summer.

According to the U.S. Energy Information Administration (EIA), U.S. crude oil inventories decreased by 1 million barrels last week. The refinery utilization rate in the U.S. rose to 93.2%, up from 91.8% the previous week. This is interpreted as refineries increasing their operating rates ahead of the summer demand expansion.

In India and Southeast Asia, where the summer heat has already begun in earnest, electricity demand is rising sharply.

According to the Associated Press, in 16 states in southern India, home to about 700 million people, planned power outages lasting between 2 to 10 hours per day are being implemented due to concentrated summer cooling electricity demand.

Announcements that Europe’s ban on Russian oil imports could be implemented within weeks are also fueling concerns about oil supply. According to CNN, Ursula von der Leyen, President of the European Union (EU) Commission, stated in an interview at the World Economic Forum (WEF) held in Davos, Switzerland, on the 24th, "Negotiations on the Russian oil ban will be concluded within a few weeks." If the EU follows the U.S. in fully implementing the Russian oil ban, import restrictions for Asian and other regional countries are also expected to tighten.

Meanwhile, major oil-producing countries have firmly stated that there will be no additional production increases, raising the level of supply pressure. Saudi Arabia’s Foreign Minister Faisal bin Farhan Al Saud said at a press conference on the 24th, "As far as we know, there is no shortage of oil, and oil-producing countries have done their best to increase production," adding, "The bigger problem is the lack of investment in refining facilities since COVID-19."

If supply issues worsen, there are concerns that international oil prices could soar from the current $110 level to as high as $150. Jeff Currie, Global Head of Commodity Research at Goldman Sachs, recently warned in an interview with CNBC, "We expect international oil prices to reach around $125 this summer, and if surrounding risk factors intensify, prices could rise to $150."