The brent oil traded at $100 per barrel in the Asian session today on news of Russia attacking Ukraine, which has, in turn, exacerbated concerns that a war in Europe could disrupt global energy supplies.
Russian President, Vladimir Putin authorized a special military operation in Ukraine. Ukraine’s Foreign Minister, Dmytro Kuleba said in a tweet that Russia had launched a full-scale invasion of Ukraine and was targeting cities with weapons strikes.
The global benchmark, the Brent crude hit a high of $102.48 a barrel, its highest since September 2014. It is however currently trading $98.82 a barrel, up 5.11%. The United States’ benchmark, the West Texas Intermediate (WTI) crude futures is up 5.26%, currently $96.94 a barrel, after rising to as much as $97.40, the highest since August 2014.
What you should know
Oil prices have surged more than $20 a barrel since the start of 2022 on fears that the United States and Europe would impose sanctions on Russia’s energy sector which will in turn disrupt oil supplies, being that Russia is the second largest oil producer.
As previously mentioned, Russia is the world’s second-largest oil producer, and its oil caters to most of the European refineries. The country is also the largest supplier of natural gas to Europe, providing about 35% of the supply.
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Warren Patterson, head of ING’s commodity research gave his take on the current Russian – Ukraine spat. He stated, “Russia’s announcement of a special military operation into Ukraine has pushed Brent to the $100/bbl mark. This growing uncertainty during a time when the oil market is already tight does leave it vulnerable, and so prices are likely to remain volatile and elevated.”
Western nations and Japan on Tuesday punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine and threatened to go further if Moscow launched an all-out invasion of its neighbor. However, these countries have been careful to not impose sanctions on energy trade.
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OCBC economist Howie Lee stated, “It’s not just geopolitical risk that is the problem but the further straining of supply. Russian oil supply will disappear overnight if faced with sanctions … and OPEC can’t produce fast enough to cover this gaping hole.”
Some members of the Organization of Petroleum Exporting Countries and its allies (OPEC+) said there is no need for the group and its allies to increase output further as a potential deal between Iran and world powers will increase supplies. Some OPEC+ members are already struggling to meet current targets.
Japan and Australia said today that they were prepared to tap their oil reserves, together with other International Energy Agency (IEA) member countries, if global supplies were hit by hostilities in Ukraine. Analysts are also warning of inflationary pressure on the global economy from $100 oil, especially for Asia, which imports most of its energy needs.
HSBC economist Frederic Neumann explained, “Soaring oil prices come at an especially difficult time. Asia’s Achilles heel remains its vast import needs for energy, with surging oil prices bound to take a hefty bite out of income and growth over the coming year.”
Also weighing in on oil prices is the possible return of Iranian oil to the global market. The U.S. and Iran have been engaged in indirect nuclear talks in Vienna, in which a deal could lead to the removal of sanctions on Iranian oil sales and increase global supply.
Iran on Wednesday however urged Western powers to be “realistic” in talks to revive the 2015 nuclear deal, and said its top negotiator was returning to Tehran for consultations, suggesting a breakthrough in its discussions is not imminent.
Additionally, U.S. crude stockpiles rose 6 million barrels last week while distillate stocks fell, according to market sources who were citing American Petroleum Institute figures late on Tuesday.
Ahead of government data on Thursday, analysts forecast a 400,000-barrel build in crude and a drawdown in fuel stockpiles. Gasoline inventories rose by 427,000 barrels and distillates stockpiles fell by 985,000 barrels, the API data showed according to the sources, who spoke on condition of anonymity.