It is ironic that Brent crude has fallen 32% from its $123 high last June to $83.

63 now even
though the Ukraine war has escalated with Putin's missile attack/terror bombing and EU's
ban/price cap on Russian oil imports. The steep price fall in black gold has happened after a 2
MBD output cut by OPEC+ led to a diplomatic crisis between the Biden White House and Saudi
Arabia. The conclusion is unmistakable. The oil market is now pricing in the impact of a
worldwide economic slump, led by a plunge in Chinese fuel demand. For the first time since
1990's, the oil market has to grapple with the hard reality that the Middle Kingdom, the largest
trading partner of all six Gulf oil exporters and the Kremlin's tacit ally in Ukraine, is no longer
the growth engine of the world economy. China can no longer act as the pillar of the 100 MBD
wet barrel market.

Since Lloyds of London and the German/EU reinsurance companies control 95% of the tanker
insurance market, even importers of Russian oil like India will have a hard time defying Uncle
Sam's diktat now. Russia's Ural crude traded at a $5 discount to Brent on the eve of the
invasion but the discount is now $15 as the EU price cap comes into force. The West Texas oil
futures curve has also gone into contango demonstrating that an oil glut has emerged in the US.

Russia faces a double whammy since tanker rates have tripled while it needs to shift its
maritime exports from Europe to India and China at far higher cost. No global oil tanker firm
will touch Russian crude or diesel fuel with a bargepole now that Washington and Brussels have
weaponized marine insurance. Open source intel analysts estimate that Russia has suffered
100,000 casualties in Ukraine with 30,000 dead in the past nine months, almost four times the
death toll of the Soviet Union's Red Army in its ill fated misadventure in Afghanistan. The
financial sanction and technology/oil export bans will soon make it impossible for Putin to
finance a war that has exposed incompetence, corruption and battlefield defeats for a Russian
military that once vanquished Hitler in Berlin and chased Napoleon from Moscow to Paris.

I find it ironic that Saudi oil minister Prince Abdulaziz claims that buffer stocks have been used
to "manipulate the market" when the Kingdom has been doing just that as the swing producer
of OPEC since the Sheikh Yamani era after the October 1973 Yom Kippur War and the Arab oil
boycott. Yet the prince is 100% right. Biden has released 239 million barrels from the strategic
petroleum reserve and thus more than doubled global commercial inventories of crude oil. This
is the reason Brent crude fell so steeply since its June peak. Keynes said - teach a parrot to say
supply and demand and you have an economist. When demand slumps (recession/China) and
supply rises (SPR, black market, quota cheaters, inventory), black gold prices fall. Parrotnomics
101.

Is the world now on the precipice of another oil price cash, as in 2015/16?

Comments:
Sagar Singh Setia
Just 2-3 technical points I would like to share:
1) India has been using Dubai based subsidiary to certify the IR class as the reinsurers were
wary of maritime insurance for the Russian oil even before the embargo or oil price cap was
announced. So, IMO there is an alternate to the insurance problem which is also reflected in
the Russian numbers as it is still producing more than 10 mbpd

2) Ural was trading at a steep discount post the war ($18-20) and Russia is comfortable at $60/
barrel as it is more than their breakeven. Thus, oil price cap is a futile exercise unless the price
cap is at $30 as proposed by Baltic nations 2-3 days back.

3) The WTI curve is in contango thanks to technical factors and refinery shutdowns which led to
crude oil glut last month.

4) Real devil in the details lie in the crack spreads as diesel spreads are hovering around highs
due to Atlantic Basin shortage and the upcoming hoarding of products by the EU before the
embargo hits.

The real test will begin when the embargo hits as it might cause some short-term chaos in the
oil market, the EU is highly dependent on products like diesel from Russia which will be hard to
replace considering a shortage in the US.

Elias Arwadi
Would be interesting to see how would an oil price crash play in the US and Europe inflation
levels and the whole saga of QT and the daily story of pivot, pause, recession, or soft landing.
Especially that the backdrop is a slowdown in Chinese oil demand, hence growth.

Venkateswara Duggirala
This is the commodity which can make everyone an economist and a Wall Street analyst. Wall
Street predicted $200 a barrel ai its peak and now it came down to $60.. a spread of $140 &
70%. One thing interesting is the sticker shock at the pump prices due to the reluctance of
increasing the refining capacity by the refiners. Also interesting would be the impact of the
Russian Urals under supply in terms of the switching costs by the midstream players for refining

Sunita Raju
The oil dynamics are beyond the realm of economic logic.
The cartel pricing which shook the world in 1970s and 1980s brought into frame the need for
alternatives to "black gold". Then came shale gas that effectively tried to neutralise the cartel
pricing.
The politics of the current oil pricing is surely turning interesting- with Russia and Saudi Arabia
on the same side. Remember two years ago, with negative crude prices, Russia didn't agree to
cut output... US had to intervene...
Now with decarbonisation efforts and the call to reduce the dependence on fossil fuels, the
story gets even more interesting.....

Iqbal Latif
Oil and gas will fall much far more steeply. China's zero covid is not factored in fully. And Russia

🇷🇺 will need huge sums of monies for reparations and rebuilding its rag-tag Army. One thing
Putin has realised is his archaic conventional army needs a total refit. And that will mean more
oil and gas to sell in face of sanctions and Russia has lost its lucrative west Europeans 180bcm
market in western Europe. I see a bleak future for energy.

Olivier Iche
As usual very complete and interesting reading. Tks for posting Matein Khalid

To answer your question...No, we are so far from a 2015 situation (Actually almost the
opposite). What crushed the oil market back then was the opec disagreement to cut along with
the huge inventories due to exploding US shale production.
1- inventories are still low in absolute terms. SPRs are depleted, reaching lows of the 1980s. It
has to be replenished rather sooner than later.
2- rig counts in the US and Canada are rising at a very slow pace since covid. Barely reaching
half the level of the shale boom period.
3- many us shale assets need 80-100$ WTI price to just break-even as the main fields left are
poor qualities unlike in the 2010s (explains why rig counts is just slowly rising). Oil producers
are not expanding capex that much and keep some of the actual free cash flow for their balance
sheet and some for their shareholders.
4- we are currently living the consequences of 2014-2015 oil crash/ excess supply. For the past
7 years majors and smaller producers have not been investing in the business and tried to
delever/protect their balance sheet. The huge underinvestment over that period (both up and
downstream) is leading to a price floor.

Michael Ekin Smith

Hydrocarbons are facing long term demand reduction, if not destruction, as ground transport
gradually transitions to electric.
OPEC recently released a study projecting demand growth - but that is increasingly looking
wildly optimistic.
Reduce the wet barrel market by a fifth - to about 80 mbd. Then readjust price expectations.
And corporate capex.
If not a sunset industry, it is one that has likely topped out.