Oil prices have been on a roller coaster following the EU's decision to impose an embargo on Russian oil that arrives by sea. After an initial spike to around $120 per barrel early last week, July '22 crude oil futures are currently trading around the $112 area as traders and oil experts try to figure out the material impact of the embargo on the oil market.

"The partial embargo on Russian oil has pushed crude prices higher today on the 'expectation' of tighter waterborne cargoes, but the lack of a pipeline shut-in largely leaves imports into Europe intact," Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, told International Business Times last week, following the EU embargo decision.

Russia will deliver oil via pipeline to countries like Hungary and Slovakia, which could turn into a hub of the underground oil market, according to Athens Chamber of Commerce and Industry counselor Fanis Matsopoulos.

"I can see oil flowing all over Europe," he told IBT.

Patricia Schouker, director of strategy at PolySwarm, is on the same page.

"The dynamics of the global oil trade make sanctioning Russia difficult," she told IBT. "In particular, all major oil buyers would need to reject Russian oil for sanctions to work. In this instance, the EU has allowed for Russian oil imports to be delivered by pipeline while embargoing oil carried by sea – a fact which could well undermine the efficacy of these sanctions. How much it will hurt Russia will depend on its ability to find other buyers and how much 'most' turns out to be as the deal includes a temporary exemption for oil via pipelines."

Several unknowns add uncertainty to the oil market.

One of them is whether Saudi Arabia will step up to fill any shortfall in oil supplies caused by the embargo. Another unknown is whether sanctions against Iran will be lifted, so it can resume (officially) oil exports. A third unknown is whether American frackers will add new rigs fast enough to bring more oil to the market that will be exported to Europe. A fourth factor is the possibility of Russia slashing oil prices causing disarray in the OPEC+ coalition.

In addition, there's the question of demand destruction caused by the higher energy and food prices, which have crushed family budgets around the globe.

What's the end game?

Faulkner sees oil trading in the range of $100 to $130.

"The true end game for crude returning to a sub-$100 level will likely be the realization of a full global economic slowdown that appears to have begun in early March [data has not fully revealed this yet]," he said. "Given the long lags in economic data and international events, it will remain difficult to predict what prices will do over the near term other than hang between $100 and $130."

But there could be surprises that could take oil way above or below that range, as the embargo has the potential to dramatically change the oil market.

Oil and gas prices have surged over supply fears as Russia is one of the world's biggest producers and exporters of the fossil fuels Oil and gas prices have surged over supply fears as Russia is one of the world's biggest producers and exporters of the fossil fuels Photo: AFP