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How Rising Oil Prices in Europe Affects Singaporeans

Irrespective of increasing crude oil prices, refining margins for 10 ppm Gasoil skyrocketed to unprecedented heights in Asia last Thursday. The crack spread – the difference in price between crude oil prices and refined products based on it, such as gasoline – climbed to $23.09 per barrel in the Asian session, a $1.46 increase from the previous day.

Despite already surging crude oil prices, the 3-2-1 crack spread in the US is up almost $5 from the beginning of the year. This is a strong indicator that we may see higher crude oil prices in future.

Oil Prices Today in Singapore

Singaporean Minister of Trade and Industry, Gan Kim Yong, is preparing the public for sharp increments in consumer energy prices. He pointed out the inevitability of diesel, petrol and electricity price hikes brought on by the ongoing conflict in Ukraine.

Rising oil prices in Europe

With Singapore primarily importing most of its energy needs, the upsurge in global oil and gas prices over recent months adds to previous Crude oil prices hikes for Singaporean buyers.

He emphasised concerns over the pressures global supply chains face with Ukraine and Russia’s key wheat and metal exporters. Mr Gan’s words;

“Make no mistake, that while Ukraine may seem far away from Singapore, the conflict there will have a real and significant impact on all of us,” will resonate with many a nation at this time.

It is Singaporean consumers who will feel the impact as motorists, homes, and businesses face prompt hikes in their cost of living.

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Why is Oil Prices Increasing in Singapore

As buyers avoid any Russian supplies of Gasoil, refining profits are escalating globally while fears of potential shortages grip the markets. The tight Asian Gasoil market is expected to attract even more robust arbitrage demand from Western countries in the coming days.

Singapore Crude oil traders attribute the recent jump in Asian Gasoil fundamentals to a spill-over from Europe as they avoid any Russian products.

It is not only oil and gas prices that will soar due to the crisis in Ukraine—they are part of a much broader energy supply chain. In Singapore, almost 95% of all electricity is generated from natural gas. With the Crude oil prices hikes, electricity production costs will soar, with very little room to navigate or counter these increases in the interim.

Singaporean consumers are transitioning to clean energy vehicles, but diesel and petrol are urgently needed. With the sharp rise in oil prices, the production of diesel and petrol will be much more costly—with the end-consumer having to take the punches.

With no end in sight to the war in Ukraine, and crippling economic sanctions against Putin’s Russia, key commodity prices are spiking dramatically.

With crude oil dangerously close to USD140 a barrel at the Asian opening on Monday morning, the US is discussing a complete ban on Russian crude— with or without their European allies. It’s all a far cry from oil’s USD 71 average in 2021. Coupled with natural gas prices in Europe at all-time highs, one cannot help but compare current events to the 2008 market crash and devastating recession.

U.S Sanctions on Russia Timeline

Sanctions against Russia are causing turmoil in the energy markets as companies worldwide progressively seek to disassociate themselves from any Russian exposure. This ‘self-sanctioning’ means that a significant number of businesses are refusing even limited trade with Moscow, despite carve-outs within the official regulations allowing for trade in some goods such as crude oil and other commodities to continue.

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The recent rise in energy prices has caused economic worries across Europe. A short recession is inevitable after an already brutal winter, and it could happen as soon as this year, with the United States being struck too.

According to John Hardy, Head of FX Trading at Saxo Bank, “How central banks respond to rising oil prices may be irrelevant in the near term, and they may have to focus their efforts on systemic risks triggered by the bonfire in Russian assets.”

Although the EURCHF reached new depths of below 1,0200 last week, the EURJPY and EURUSD have not yet moved lower, despite Europe bearing the full brunt of the fallout from the conflict in Ukraine. Eastern European currencies such as PLN, CZK, and HUF have performed considerably worse. The Hungarian opposition is currently trying to portray PM Viktor Orban as a Putin ally, placing the HUF as the weakest of the lot.

What Happened when oil prices skyrocketed in 2007-08 and 2011-14

It was significantly affected the whole global economy. However, with today’s stronger dollar and more expensive gas, there will be even more significant consequences for global markets, particularly as America has become an ever more prominent participant within them.

Amidst the current volatility, US President Biden also failed to ease investor tensions with his less-than-assuring State of the Union speech, where he did not provide any solid solutions to high inflation.

The markets continue to try and put on a brave face, but risks remain. The potential is not only one way, as positive shocks for financial markets may come from sudden diplomatic breakthroughs or even a Russian military retreat.

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On the other hand, this could lead us into an era where we no longer have much trade with Russia due to the destruction of their trade interface capabilities. Coupled with the burning of any Russian-related assets, we will see a vacuum in the liabilities side of the financial system equation. “Somehow asset markets—especially equities—can’t help but put-up false hopes during times like these.”

When the assets of Russia and its wealth are frozen, it causes a vacuum in Europe’s financial system. This leads to increased danger on banks’ parts regarding their counterparties, who are now without viable debt or currency as collateral – sometimes they have been bankrupted by these actions. Even though expectations impact markets significantly, it is not easy to forge expectations during times like these, which we can assume will add to further market stress.

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