Oil prices one year after Russia’s invasion of Ukraine

The oil market looks drastically different today than it did a year ago, when Russia invaded Ukraine.

“It is the most significant set of market dislocations and distortions in energy markets generally speaking that I ever recall,” Ed Morse, global head of commodity research at Citi, told Yahoo Finance.

Prior to the invasion on February 24, 2022, Russia was exporting much of its crude and petroleum products to Europe, with a much smaller portion going to China, India, and other Asian nations.

By the end of 2022, that ratio had completely flipped.

“It has, from a markets’ perspective, created two markets, a transparent [oil] market, and a non-transparent market,” said Morse.

“Russian crude oil was simply reshuffled from old customers in Europe to new customers in Asia,” Andy Lipow of Lipow Oil Associates recently wrote in a client note. “Europe’s energy divorce from Russia is nearly complete.”

The latest in a series of sanctions on Moscow by Western nations in response to the war was imposed earlier this month: Those include an E.U. ban on Russian oil product exports. Prior to that, a G7 price cap on Russian oil was implemented in order to weaken the country’s coffers.

“In a roundabout way, the December 5, 2022, price caps that were imposed on Russian crude oil exports are working. The E.U. and USA and others are not buying from Russia, that leaves Russia with a limited number of customers. Those customers are demanding lower prices,” said Lipow.

It’s not every year that energy prices skyrocket like they did over the past year. Days after Russia’s invasion, West Texas Intermediate (WTI) reached a closing peak of $123.70 per barrel and Brent futures settled at $127.98.

The Biden administration authorized releases from the U.S. strategic petroleum reserve in order to bring down gasoline prices, which reached record highs by mid-June of last year.

Eventually prices fell, and today, WTI is trading around the $75 per barrel level while Brent is hovering around $82 per barrel.

The reopening of China following strict COVID lockdowns is seen as bullish for energy prices going forward, but so far oil has been mostly been trading in a tight range.

“Crude has gone sideways as the China expansion story battles with the ‘recession around the corner’ story. So far it’s a stalemate,” Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance.

Natural gas prices both in Europe and the U.S. have also come down considerably from their peaks. The energy sector, which had a blockbuster 2022, is seeing a lackluster 2023.

“Energy prices have been relatively weak this year as we have a very warm winter in both North America and Europe. The weather has caused natural gas prices to plummet and oil prices to weaken, which weighs on energy stocks,” Jay Hatfield, CEO at Infrastructure Capital Advisors.

‘Energy transition seeing an acceleration

Both the U.S. and Europe have increased their efforts to go green with renewable energy efforts, as companies invest in solar, wind, and biofuels.

Renewable electricity capacity in the E.U. is projected to double between 2022 and 2027, according to the International Energy Association.

“The energy transition is absolutely seeing an acceleration as a result of Russia/Ukraine,” says Citi’s Morse. “It was on the path, but it got accelerated.”

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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Bessie Venters

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