After Russia invaded Ukraine in late February, crude oil prices rose to over $100 per barrel for the first time in eight years. As you probably know, as the price of crude oil rises, so does gasoline, heating oil, and other petroleum-based goods.
Before this, energy costs in all industries—including oil, propane, natural gas, and electricity—had been rising steadily due to sluggish global oil production not keeping up with the mass demand that immediately followed the COVID-19 pandemic’s supposed end.
This latest increase following the invasion of Ukraine just piled on more misery for consumers already exhausted by two years of surviving a pandemic.
Before the Ukraine conflict further accelerated inflation, a hyperactive consumer market accompanied by persistent supply shortages had pushed inflation rates in our country to their highest level in 40 years.
“We just need to drill for more oil at home,” some pundits and politicians in the United States have stated as a simplistic and misinformed solution to the oil production shortfall.
But while that soundbite may work on the evening news and social media, it ignores the predictions of investors, who realize that a zero-carbon emissions world is not too far off in our future. As legislators attempt to shift the United States away from fossil fuels, big money is keeping its cash in other sectors. Instead, investors are seeking long-term, successful investments in the expanding green energy sector.
By the way, the heating oil and local heating oil dealers like JW Pierson have made great strides in making our fuel more environmentally friendly by using a blend of ultra-low sulfur heating oil and biofuel, a renewable energy source made from natural resources. Read more about our biofuel blend here.
Another variable that the oil companies consider is the memory of the dramatic fall in oil prices during the early days of the pandemic. In the Spring of 2020, oil prices plummeted all the way to negative $30 per barrel! Traders had to pay buyers to take oil! Since then, however, prices have increased steadily before skyrocketing in late February after Russia’s invasion of Ukraine.
The roller-coaster ride of oil prices continues. As rapidly as mid-March, crude oil prices dropped under $100 per barrel once more. This was influenced by a slew of reasons, including the unexpected COVID-19 lockdowns in China, tiny indications of a possible diplomatic solution to the Ukraine conflict, and the market’s biggest drop in four years of “bullish bets” on the market by hedgers.
To say that we are in the midst of an extremely volatile energy market might be an understatement.
Because it is the world’s third-largest oil and liquid fuels producer after the United States and Saudi Arabia, Russia has power. It exports both crude oil and natural gas in significant amounts.
For weeks, energy costs had been rising in the run-up to the potential sanctions that might be imposed on Russia’s energy sector if it went ahead and invaded Ukraine. This is known as the fear factor in the frenzied world of investment. Even the prospect of a disruption in energy supply has a big influence on commodity traders’ buying and selling.
Well, Russia invaded, and the U.S. was the first country to place a ban on Russian imported oil and petroleum products, which amounted to about 7% of U.S. imports in 2020. In comparison, Canada ranked number one with 52% of petroleum imports, according to data from the U.S. Energy Information Administration (EIA).
But here’s where the fear factor comes in again. While Russian oil imported into the United States may not amount to much, the prospect of Europe eventually joining the US in banning Russian energy imports would create a big gap to fill, and those who make a living on the oil markets don’t appreciate uncertainty. Speculators and hedgers are two types of investors that benefit from oil price volatility. Speculators profit from price swings, while hedgers limit risk for their clients who are involved in the production or consumption of oil.
It’s too early to tell whether this is a one-time blip or the start of something bigger, but we are confident that the price surge will be short-lived. Nothing would make us happier than when prices return to normal. Regardless of what happens with energy costs, trust us to look out for you and let’s all pray for the people of Ukraine.
JW Pierson is committed to reliable heating oil delivery at the best possible price. Contact us for more information.