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April 2022 Bulletin

Oil Shock! -Record Highs Just Ahead
By: Arthur Berman
We are now experiencing an oil shock. The chain of events set in motion by the Russian invasion of Ukraine will almost certainly change the structure of energy markets for years to come. The removal of 7 mmb/d of Russian crude oil and condensate exports would be the biggest structural change to the oil market since the Iran-Iraq war in 1980.
“Everything changed…There’s no going back from this. Whatever lies ahead will be profoundly different from what any of us know. Illusions have been shattered, assumptions exposed, paradigms exploded.” -John Mauldin
Energy prices were high before the invasion. They are higher now and will move still higher as the consequences of this war unfold.
Brent price averaged $93.75 for the first three weeks of February before the war began. It has averaged $110.50 since. The extraordinary price and spread signals to producers reflect the market’s extreme sense of supply urgency.
Prices reached a seven-and-a-half high in February but are lower in real dollars than during the last price boom. The February average price of Brent was $97.13. That was almost 25% less than the CPI-adjusted average of $127.59 from 2010 through mid-2014 (Figure 1).
That means that there is plenty of room for prices to increase—if the past is any guide to the future. The only realistic barrier to price growth is demand destruction and economic recession. Both are possible at current prices and probable at even higher prices.
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