War anxiety hiking world market oil prices

Recent days' rapid world market oil price advance is caused by the markets' war anxiety, OPEC production cuts and the looming summer consumption uptick. So far, this has been reflected in the price of gasoline in Estonia, while that of diesel is set to follow in the wake of a May excise duty hike.
On Wednesday, the price of Brent crude oil fluctuated around the $90 mark. Just a couple of weeks ago, in mid-March, the price per barrel was still at $82.
The price leap began with Ukrainian drone attacks on Russian refineries, explained Tarmo Kärsna, board member of motor fuels retailer Alexela. However, now there are other reasons behind the rise in prices.
"The biggest current concern is the attacks on the Iranian embassy in Syria, which are seen as a significant risk that the Gaza Strip conflict might draw in other Middle Eastern countries, led by Iran. If that happens, the entire Middle East's potential oil export is at great risk," Kärsna told ERR.
However, recent wars have not led to a decline in oil exports from the Middle East or Russia.
"Instead, Russia's crude oil export has increased due to attacks on oil refineries, as they are unable to use all their [crude oil] production capacity," Kärsna explained.
Thus, the wars have primarily brought market anxiety – the fear that exports will fall.
OPEC+ oil producers have been limiting their output since 2022. On Wednesday, OPEC countries announced that the latest restrictions would remain in place at least until the end of June. Demand is typically higher during the summer driving season. This confluence leads to a rise in oil prices.
Conversely, the United States has increased its production volume and has helped Europe replace Russian oil.
In the run-up to the fall presidential elections, fuel prices are being closely monitored in America.
"There's reason for concern. Compared to the beginning of the year, fuel prices at American gas stations have risen by 15 percent. This is definitely not a good sign for the president currently in the White House," said Kärsna.
While generally, a higher global market price for oil also means price increases at Estonian gas stations, this effect depends on the separate world market prices for gasoline and diesel. Towards summer, with increased demand, gasoline prices usually rise, whereas diesel production in Europe has been sufficient to cover the fuel previously coming from Russia, said Kärsna.
"If you look at the prices today, diesel prices have remained relatively stable in the world market, while gasoline prices have jumped significantly over the month. This has partially reached Estonian gas stations as well. Gasoline has seen a price jump, and diesel has remained at the same level," he added.
In Estonia, the fuel excise tax is set to increase in May, which will likely also raise the price of diesel fuel.
"The direct impact on gas station prices is in the range of about 3.5-4 cents per liter," said Kärsna.
The price of crude oil in the world market is likely to continue rising towards summer. OPEC countries prefer a price level of $90-100 per barrel. However, the impact of wars, elections and other major geopolitical events, and even more so the market's reaction to them, is very hard to predict.
"We are currently in a very tense period, with practically weekly surprises in store, in the world oil market," said Kärsna.
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Editor: Marcus Turovski