Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]


The price of Brent crude ended the week at $109.10 after closing the previous week at $113.12. The price of WTI ended the week at $107.62 after closing the previous week at $109.16.

In last week’s note, we highlighted that while prices have been declining, the price movement remained on the upward trend that started in December of last year. We also stated that if the trend breaks, we are expecting to see the price of Brent crude oil dropping towards $100. At the end of last week, the price of Brent crude did break below the upward trend line, but not decisively. As such, we are still waiting for confirmation.

There are signs that the global economy is slowing down, including the economies of Europe and the U.S. Last week, the IMF lowered its forecast for U.S. GDP in 2022 to 2.9% from 3.7%, and to 1.7% from 2.3% in 2023 and to 0.8% in 2024. Additionally, the Federal Reserve Bank of Atlanta is indicating that the U.S. economy is growing at zero percent in second quarter of this year—after contracting by 1.5% in the first quarter. The economic slowdown and the high price for oil and oil products are softening demand. U.S. demand is running below pre-COVID levels with gasoline demand for the last month lagging 2019 level by 6.7%, diesel demand lagging by 6.2% and jet fuel demand lagging by nearly 14%. The strong U.S. dollar is also putting additional pressure on those countries which have seen their currency weaken against the U.S. dollar. While the U.S. dollar weakened slightly last week, as indicated by the U.S. Dollar Index decreasing to 104.19 from 104.65 of the previous week, the U.S. dollar remains the strongest since December 2002.

In addition to the tepid oil demand, we have been putting forth the view that the supply situation will be stabilizing, in part, because the announced EU ban on imports of Russian oil, will be the last major announcement which will negatively affect sentiment pertaining to future oil supply. Now, there is noise coming out of the ongoing G7 meeting with members considering the possibility of placing price caps on Russian oil and pipeline gas. The price cap on natural gas would entail European countries not paying above some fixed price for natural gas. The price gap on crude oil would place the burden on the International Group of Protection and Indemnity Clubs, which are responsible for insuring oil tankers, and would be sanctioned if the oil is sold above a fixed price. There are risks associated with the implementation of these price caps. The most obvious is that Russia will reduce sales of natural gas and crude oil to Europe, which will have a major negative impact on the economies of Europe. The price cap on natural gas has a better chance of working because Russia has less flexibility in moving natural gas to other regions because of logistical constraints. The cap on crude oil has a reduced chance of being effective because Russia can move increased volumes to other regions, including Asia. As such, for price cap on crude oil to work it will require the cooperation of India and China, which seems unlikely, given that these countries are already buying Russian crude at a discount. Plus, these countries have other reasons for wanting to maintain good relationships with Russia. Additionally, such a price cap is unlikely to be embraced by the other members of OPEC+, which are being asked to increase supply.

What is Affecting Oil Prices the Week of June 27, 2022? Stratas Advisors Infographic

While we are less concerned about the talk of price caps, we are increasing concerned about the risk of further escalation of the Russia-Ukraine conflict because of several developments:

  • The military of Belarus is carrying out mobilization exercises, and Russia is moving military equipment to Belarus, including missiles. Additionally, Putin has indicated that nuclear-capable missiles will be moved to Belarus in the next few months.
  • Tensions are rising between Russia and Poland, which is a NATO member. On June 25, Russia claimed it had killed 80 Polish fighters in eastern Ukraine and destroyed 20 armor combat vehicles and eight rocket launchers in eastern Ukraine.
  • Lithuania is preventing Russia from moving material to Kaliningrad through Lithuania with Lithuania claiming that the ban is required because of EU sanctions. Kaliningrad is about 1,300 km (800 miles) from Moscow and is located along the Baltic Coast between Lithuania and Poland and has a population of around 1 million Russians. Additionally, Russia has a significant military presence in Kaliningrad, including naval and air forces. Russia is viewing the ban as a “blockade,” which is a military action.

The longer the conflict goes on, the greater the risk of escalation—and the greater the damage to western economies—and to developing economies, which are getting hit hard by elevated energy and food prices, while facing the possibility of physical shortages.


About the Author: John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.