Prices of oil for the two major benchmarks have rallied more than $2 on Tuesday as investors worry about supply disruption due to tensions between Russia and Ukraine. The tension between the two nations escalated after Moscow ordered troops into two breakaway regions in eastern Ukraine.
Russia’s new stance has gotten international condemnation and U.S. officials said Washington in coordination with allies is planning to announce new sanctions on Russia, the world’s second largest oil producer. U.S. President, Joe Biden has issued an executive order to halt U.S. business activity in the breakaway regions and ban the import of all goods from those areas.
At the start of the week, the tension between the two nations seemed to ease when U.S President Joe Biden agreed to meet with Russian President Vladimir Putin. This saw oil prices ease, with the United States benchmark falling below the $90 range. However, the drop was immediately reversed as Russia’s President recognized two breakaway regions in Eastern Ukraine and ordered Russian troops into those two regions.
What you should know
- The global benchmark, the Brent crude futures is up 3.40%, currently trading $96.16 a barrel adding to a 2% gain seen on Monday. In the Asian session on Tuesday, the brent hit $97.66, its highest since September 2014.
- The U.S. benchmark, the West Texas Intermediate (WTI) crude futures is up 4.86%, currently trading $94.61 a barrel. The U.S. market was closed on Monday for a public holiday. It traded a high of $94.92 in the Asian session.
- A Biden administration official said Russia’s military action did not as yet constitute an invasion that would trigger a broader sanctions package.
- Commonwealth Bank analyst, Vivek Dhar explained that it was unlikely U.S. and European governments would impose oil or gas sanctions on Russia if it invaded Ukraine further, as that would inflict pain on themselves. He also added that Russia itself could hold back oil and gas supplies if it sought to retaliate against any other sanctions imposed by the West.
- Ukrainian President, Volodymyr Zelenskiy accused Russia of wrecking peace talks and ruled out territorial concessions.
- The major concern in the oil market is whether or not Russian energy exports would actually be disrupted if Moscow went ahead with a full-scale invasion of Ukraine and western governments imposed sanctions against Russian financial institutions.
Sugandha Sachdeva, vice president of commodity and currency research at Religare Broking explained, “Having formed a base at $89 per barrel, WTI crude looks poised to surge further on the higher trajectory, owing to heightened geopolitical risks.” She also explained that there is still a crucial hurdle in place at $95 per barrel and a break past this level will pave the way for crude prices to traverse higher towards $105 per barrel in the coming days.