Meanwhile, Qantas says rate hikes are imminent: File Image/Pixabay
U.S. president Joe Biden announcing a ban on oil imports from Russia on Tuesday had the predictable effect on prices: they soared yet again, this time by almost 4 percent – with some analysts warning that demand destruction is looming.
Brent rose 3.9 percent to settle at $127.98 per barrel, and West Texas Intermediate rose $3.6 percent to settle at $123.70 per barrel.
European nations have said they plan to reduce their reliance on Russia, but filling the void without crippling their economies will take some time: "It's not a surprise that the E.U. is not going in with the U.S. on this, and that is certainly a positive for oil, but we also have to recognize that this is changing rather quickly," said Kristina Hooper, chief global market strategist at Invesco.
Ryan Lance, CEO, ConocoPhillips
Prices are encroaching upon the area of demand
With both Russia and the Ukraine firmly entrenched for a long battle and the U.S. attempting to appear hawkish without actually engaging in the conflict, it's anyone's guess how high crude prices will climb: Vicki Hollub, CEO of Occidental, speculated that oil could easily hit $150 per barrel, and although her company along with others are ramping up production, the output increase has been some time in the planning and "we can't ratchet up or ratchet down" as much as Washington appears to believe is possible.
For his part, Ryan Lance, CEO of ConocoPhillips, worried that oil prices are so high they could cause demand for crude-derived products such as gasoline to soon shrink: "Prices are encroaching upon the area of demand, whether it's motorists filling up their cars or heating or cooling their houses."
Amrita Sen, director of research at Energy Aspects, said prices are headed "way, way higher" with only a few corrections possible,, but that oil would have to reach at least $150 and possible more "for a material slowdown in demand growth" - but current price levels are having no effect due to the enormous post-pandemic desire to return to normal consumer habits.
Still, the potential for high prices to ruin demand recovery is disturbing, especially in the airline sector, which is slowly emerging from two years of government-imposed Covid restrictions: Qantas Airways Ltd. on Tuesday flagged a period of higher fares in order to claw back rising fuel costs.
Qantas chief executive officer Alan Joyce reasoned that every $4 jump in the oil price adds 1 percent to air fares and that his company's fuel bill was 50 percent hedged for the third quarter of 2022 and 30 percent hedged for the final quarter of the year: "If we stay at these levels, air fares are going to have to go up."
Meanwhile, although energy producers insist it's near-impossible to turn on a dime and solve the price crisis, that didn't prevent Fatih Birol, executive director of the International Energy Agency, to express his disappointment with the energy sector on Tuesday.
He insisted that a "substantial amount of oil" could be brought to the market via member countries releasing more stocks from emergency reserves; he added that his organization is reminding them that if the turmoil continues it could be incumbent on them to release supplies as well as come up with ways to reduce demand.
As for the prospect of Organization of the Petroleum Exporting Countries (OPEC) expelling Russia as some critics have called for, he remarked, "It's up to them" but that such an initiative would have consequences.