KBRA Releases Research – Western Sanctions Weigh on Oil Security Fears and Rising Prices

NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA releases research following Russia’s invasion of Ukraine and its implications to the global oil and gas industry and the exacerbation of inflation in global economies. The effects of sanctions implemented by Western nations in response to Russia’s attack on Ukraine is still ongoing. Political strategy aside, sanctioning one of the largest global producers of oil and gas comes at a cost and market fears have driven a surge in commodity prices.

Key Takeaways

  • Even in the absence of direct sanctions on the Russian oil and gas industry, benchmark prices have risen to record levels over the last several weeks as market participants move to sever ties with the country. KBRA believes that these self-induced sanctions signify that $100-plus/bl crude oil prices are here to stay.
  • While artificially high crude oil prices should induce supply and demand dynamics that push down the price of oil, the imbalance of the missing 5 million barrels per day (bl/d) of Russian crude oil exports cannot be easily replaced over the short term.
  • KBRA believes that producers in the U.S. Permian Basin are well equipped to ameliorate some of the pain from high oil prices given their well economics and shorter rig lead times. Still, increases from Permian producers will take some time to work through the system and would only represent one-fifth of the needed production increase.
  • Without adequate supply increase, higher oil prices are likely to stay, which would lead to demand destruction for petroleum productions over the medium term. High oil prices, which may trigger a slowdown in economic activities, combined with inflationary pressures that are already being felt, may lead to the dreaded stagflation.
  • Nevertheless, over the medium to long term, KBRA still expects supply and demand dynamics to moderate oil prices and push the price of crude oil back below $100/bl.

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KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.


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