The head of Trafigura has warned that the oil market could reach a “parabolic state” later this year with prices surging to record highs and triggering a slowdown in economic growth.
Jeremy Weir, chief executive of the commodity trader, said that energy markets were in a “critical” state as sanctions on Russia’s oil exports following its invasion of Ukraine had exacerbated already tight supplies created by years of under-investment.
“We have got a critical situation,” Weir told the FT Global Boardroom conference on Tuesday. “I really think we have a problem for the next 6 months . . . once it gets to these parabolic states markets can move and they can spike quite a lot.”
A parabolic move in markets is generally defined as when a price that has been rising suddenly surges to hitherto unseen levels, mimicking the right side of a parabolic curve.
Weir added it was highly probable that oil prices could rise to $150 a barrel or higher in the coming months, with supply chains strained as Russia tries to redirect its oil exports away from Europe.
Brent crude, the international oil benchmark, which is trading near $120 a barrel, hit an all-time peak of $147 a barrel on the eve of the financial crisis in 2008.
The Trafigura executive is the latest to warn that the economy has not yet seen the worst of the energy crisis, with little way of lowering prices as global supplies are already tight and likely to get scarcer if Russian production falls further.
Jamie Dimon, JPMorgan chief executive, warned last week that prices could reach $150 or $175 a barrel later this year. Analysts at Goldman Sachs are forecasting oil could average more than $140 a barrel in the third quarter, when the US summer driving season is at its peak.
Weir said the rising price of other commodities, including metals such as copper and lithium, were also likely to weigh on global economic growth and could ultimately trigger a slowdown to curb demand.
“If we see very high energy prices for a period of time we will eventually see demand destruction,” he said. “It will be problematic to sustain these levels and continue global growth.”
Russian oil production had already declined by as much as 1.3mn barrels a day — or more than 1 per cent of global demand — with the country’s output of refined products of diesel and gasoline also falling by a similar amount, Weir said.
There are risks Russia’s production will fall further with Europe agreeing late last month to ban seaborne imports of Russian oil and a looming ban on vessels carrying Russian oil accessing EU and UK insurance markets. Saudi Arabia led the Opec+ alliance in agreeing to accelerate oil production increases slightly last week, but prices have continued to rise.
Trafigura was the biggest exporter of seaborne crude cargoes from Russia’s state-backed oil champion Rosneft before the invasion of Ukraine.
Russia previously represented 6 per cent of Trafigura’s global business, Weir said, adding that the company had largely wound up its dealings in the country.
Trafigura was only lifting a “limited” amount of permitted refined products from Russia, having ceased all trading in Russian crude. Its investment in Rosneft’s vast Vostok oil project in the Russian Arctic remained “frozen”.
Weir said there was little sign of a slowdown in oil demand despite diesel and gasoline prices already reaching record levels due to tight refining capacity globally, as the economy is still growing strongly while consumers have savings after the Covid lockdowns of recent years.
Meanwhile the decommissioning of old refineries and a lack of investment in new capacity meant refined products had to be shipped much farther to reach customers. The loss of supplies from Russia, a major refiner that used to sell a large volume of diesel direct to Europe, was making the situation particularly acute.
“The barrels have to move a lot greater distances, it’s far less efficient than it was before and its problematic,” he said.