Prices of the black liquid hit their highest level in more than seven years in the Asian session today as fears that a possible invasion of Ukraine by Russia could trigger U.S. and European sanctions that would disrupt exports from the world’s top producer in an already tight market.
The global benchmark, the Brent crude futures is up 1.20%, currently trading $95.61 a barrel, after earlier hitting a peak of $96.16, the highest since October 2014. The United States’ benchmark, the West Texas Intermediate (WTI) is up 1.5%, currently trading $94.51 a barrel, hovering near a session-high of $94.94, the highest since September 2014.
The rally we have seen in the oil markets between Friday last week and today has been due to the comments from the United States about an imminent attack by Russia on Ukraine. This comment by the U.S has gotten investors in the global financial markets taking a more cautious stance.
What you should know
The United States explained on Sunday that Russia could invade Ukraine at any time and might create a surprise pretext for an attack. OANDA analyst Edward Moya explained in a note to investors that, “If troop movement happens, Brent crude won’t have any trouble rallying above the $100 level. Oil prices will remain extremely volatile and sensitive to incremental updates regarding the Ukraine situation.”
Another factor affecting the price of oil come from the Organization of Petroleum Exporting Countries and its allies (OPEC+). The cartel has been struggling to ramp up output despite monthly pledges to increase production by 400,000 barrels per day (bpd) until March.
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The International Energy Agency (IEA) said the gap between OPEC+ output and its target widened to 900,000 bpd in January, while JP Morgan said the gap for OPEC alone was at 1.2 million bpd. JP Morgan analysts further stated, “We note signs of strain across the group: seven members of OPEC-10 failed to meet quota increases in the month, with the largest shortfall exhibited by Iraq.”
The bank added that a super-cycle is in full swing with “oil prices likely to overshoot to $125 a barrel on widening spare capacity risk premium.”
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CMC Markets analyst Tina Teng explained that spare supply is limited and demand for oil has outpaced production growth, as economies bounce back from the worst of the coronavirus pandemic. she further added, “It would not take long for prices to spike higher, though global leaders are rushing to help defuse the growing tension.”
Another factor to give the bears a run for their money is the resumption of talks between the U.S and Iran to revive the 2015 nuclear deal. Although, A senior Iranian security official said today that progress in talks was becoming more difficult.
In the United States, the robust oil prices are encouraging energy firms to ramp up output as they added the most oil rigs in four years last week, energy services firm Baker Hughes Co said on Friday.