After reaching $120 per barrel, the global markets are bearing the weight of higher oil prices. Ukraine is at war, and its invader has its own energy market. Russian energy exports, in fact, are the core influences behind the sharp rise in oil during the Ukraine war of 2022. The loss of demand for Russian oil opens the market up for other producers and for Russia to raise their prices to adjust for their loss. Europe is also poised to wean off Russian energy, raising prices higher.
The Uncertainty of Sanctions
In times of uncertainty, prices can rise as businesses try to readjust their balances. When oil producers need certain conditions met before they can profit, they might be forced to raise prices in order to make up for conditions moving against them. This is what Russia is doing in response to sanctions. There’s no limit on how far the sanctions could go. The natural next step for any economy is to limit risk by shifting higher costs to other nations or consumers.
Paying in Rubles
Russia is attempting to inflate its own currency as a response to the trade loss their economy is suffering. Inflation comes about in a number of ways, but high oil prices are a leading factor behind high inflation. The inflation could be successful as long as nations rely on Russian gas or oil bought from Russia but in their own currency. Global trade is measured in currencies. The more transactions occurring in Russian rubles, the higher the ruble can rise due to demand.
Tapping Into U.S. Reserves
With President Biden geared toward tapping U.S. oil reserves, the price of oil is expected to fall and has already shifted from $120 to $103. The price drop comes from the U.S. now releasing up to 1 million barrels of oil per day from its U.S. Strategic Petroleum Reserve. The move puts more petroleum into the global market. The end result, though small, is the option to buy oil that doesn’t come from Russia. Prices can drop even more, but no one is sure as to where.