Vitol: Oil Is Underpriced For Current Supply Risks

The recent slump in oil prices does not reflect the actual risk of Russian supply disruption, a senior executive of Vitol has warned.

Brent crude dropped from close to $140 per barrel right after the start of the war in Ukraine to $104 per barrel last week as the United States and the International Energy Agency announced massive reserve releases. However, this would not be able to offset lost Russian barrels over the next few months, Bloomberg quoted Mike Muller, head of Vitol’s Asian operations, as saying.

“Oil feels cheaper than most would’ve predicted,” Muller said on a podcast produced by Gulf Intelligence. “Oil prices could be higher given the risk of disruption of supplies from Russia. But people are still lost figuring out those numbers.”

In the third quarter, Muller said, Russian oil and oil product exports could be down by between 1 and 3 million barrels daily, from 7.5 million barrels daily under normal circumstances.

Muller also noted that demand was going to continue to strengthen despite China’s recent dip because of the resurgence of the coronavirus.

“China will throw the kitchen sink at making sure the economy delivers,” Muller said. “We are going to see China put a massive effort into infrastructure spending and propping up the economy. You’re going to see a big outlay.”

At the same time, any additional supply from Iran will be slow in coming. This weekend, Iran’s foreign minister Hossein Amir-Abdollahian said the parties at the nuclear deal negotiating table were close to an agreement, adding, “We have passed on our proposals on the remaining issues to the American side through the EU senior negotiator, and now the ball is in US court.”

Oil started the week with a decline after the Houthi rebel group in Yemen and the Saudi-led coalition agreed to a truce that alleviated some Saudi oil supply concerns sparked last month by a string of Houthi attacks on Saudi oil targets.