Gas Prices Hit Fresh Record High
June 1, 2022
The energy markets rallied significantly in the morning trading hours yesterday but then sold off near the end of the trading day. Prices rallied on the news that the EU had plans to implement a partial ban on Russian oil imported by sea. This news initially was bullish for the market but then the market was getting some details of the plan and price pulled back.
The ban was on all seaborne imports which make up about two thirds of Europe’s oil purchases from Russia, but this ban will temporarily exempt oil deliveries on the Druzhba pipeline. The ban will be phased in over six months for crude oil and 8 months for refined products. Germany and Poland which account for about 600,000 barrels per day of the Druzbha oil flows have pledged to voluntarily stop oil imports via the northern part of the pipeline by December. Now the much-debated topic will be is this ban going to slow down Russian oil sales of just divert the delivery locations. Many say that just like now Russia has sold more to China and India to keep their oil flowing despite sanctions and this recent action being phased in over time will allow Russia time to look for alternatives.
Just like yesterday the near-term news of a new oil ban rallied the market but what actually happens over the next 8 months will be the real telling. The news of the plan rallied prices and then the reality down the line allows them to be sold off.
The AAA reported that US retail gasoline price also reached a record national average of $4.622 per gallon as the Memorial Day weekend marked the start of the summer driving season.
The Wall Street Journal reported that OPEC is considering suspending Russia from the OPEC+ production agreement. Exempting Russia could pave the way for Saudi Arabia, the UAE and other OPEC member to produce more to meet the production targets.