ALEXANDRIA, Va.—Oil prices have fallen slightly after rocketing yesterday, following President Biden’s announcement that the U.S. is banning all Russian imports of crude oil, natural gas and energy in response to Russian President Vladimir Putin’s continued war on Ukraine.
The Wall Street Journal reports that futures for the international benchmark, Brent crude, have declined 5.4% to $121.01 a barrel after jumping 7.7% to $132.75, before trading off the highs.
Though prices have fallen slightly, energy experts expect them to rise again, reports the New York Times. Prior to the invasion, Russia provided 1 out of every 10 barrels of oil the world consumed, and industry watchers say an energy price shock could last as long as the confrontation does, since there are few alternatives to quickly replace Russia’s exports of roughly five million barrels a day.
“We are catastrophically tightening,” Robert McNally, a former energy adviser to President George W. Bush, told the Times. “What we need right now is countries producing more oil.”
The International Energy Agency is considering releasing more oil from reserves to ease surging fuel prices and will draw up an action plan to swiftly reduce oil usage, reports Reuters.
"Next week, as we did for gas, we are coming up with a 10-point action plan how to reduce oil in a hurry," Fatih Birol told an energy conference in Paris.
"In oil markets, the most difficult months are the summer months, the so-called 'driving season,' when the demand goes up, around June-July," said Birol, executive director of the Paris-based agency, which represents 31 mostly industrialized nations but not Russia.
Last week, the U.S., along with its allies, agreed to collectively release an initial 60 million barrels of oil from strategic petroleum reserves.
Birol said the 60 million barrels is "an initial response,” adding, "It is only 4% of our stocks. If there's a need, if our governments decide so, we can bring more oil to the markets, as one part of the response."
The national average gas price is now $4.25 a gallon, according to AAA, which is the most Americans have paid on record.
“Unless something drastic happens, we are headed for average pump prices in the $4.50 to $4.75 gallon range for motor fuel and beyond $5 gallon for diesel,” Tom Kloza, head of global energy analysis at Oil Price Information Services (OPIS), told CNBC.
Energy price shocks could quickly "get to a point where people are going to make decisions not to use the product because they can't afford it," Andy Brown, chief executive of Portuguese energy firm Galp Energia, told Reuters. "There is a chance we get demand destruction.”
Demand destruction is a sharp downward drop in demand for oil or another commodity. It can be triggered by things like fast-rising fuel prices or a pandemic, for example.
“As it currently stands, demand destruction is the only thing that could cool off prices,” Denton Cinquegrana, chief oil analyst, OPIS, told TransportDive. “There’s not much you can do if the economy is growing.”
(Cinquegrana will present his outlook for fuels at the NACS State of the Industry Summit April 12-14 in Chicago.)
The NACS Fuels Resource Center provides context around fueling issues, including the backgrounders Convenience Stores Sell the Most Fuel and How Gas Is Priced.