The global benchmark, the Brent crude futures has started the trading session, surging over $135 per barrel, as Russia’s invasion of Ukraine intensifies and oil buyers shunned barrels from one of the world’s largest exporters of crude and refined crude products.
Since Russia began its special military operation in Ukraine, the United States and other European nations have been reluctant to sanction Russia’s oil and gas exports. This is because the Western allies are concerned about the repercussions on Europe’s energy supply and skyrocketing oil and gasoline prices.
Even with no sanctions, the Brent oil is trading at a price point not seen since 2008, representing a 14-year high. The United States benchmark has also rallied to a 14-year high as it surges past the $130 per barrel benchmark at the start of the Asian session.
What you should know
- In the first few minutes of trade on Sunday, both benchmarks rose to their highest since July 2008 with Brent at $139.13 a barrel and WTI at $130.50. Both contracts hit their highest ever in July 2008 with Brent at $147.50 a barrel and WTI at $147.27.
- Alongside oil prices, U.S. gasoline and distillate futures have soared to their highest on record within a few minutes of the market open on Sunday. The average price of a gallon of gasoline hit $4.009 on Sunday, according to AAA, an automobile association, which is the highest since July 2008. Consumers are paying 40 cents more than a week ago, and 57 cents more than a month ago.
- U.S. Secretary of State Antony Blinken stated on Sunday that the United States and European allies are exploring banning imports of Russian oil and the White House coordinated with key Congressional committees moving forward with their own ban. Russia exports around 7 million bpd of oil and refined products and accounts for 7% of world’s global supply.
- Analysts at Bank of America stated that if most of Russia’s oil exports are cut off, there could be a 5 million barrel or larger shortfall and that means oil prices could double from $100 to $200 a barrel. Analysts from JP Morgan said this week oil could soar to $185 per barrel this year.
Without sanctions, private companies and organizations are refusing to buy Russian oil in solidarity with Ukraine. Daniel Yergin, author and vice chairman of S&P Global stated ahead of the CERAWeek conference in Houston, “The idea was not to sanction oil and gas because of their essential nature, but oil is getting sanctioned by private actors not wanting to pick it up or ports not wanting to receive it and the longer this goes on the more supply chains are going to buckle.”
Talks to revive Iran’s 2015 nuclear deal with world powers were delayed with uncertainty on Sunday as Russia demands for a U.S. guarantee that the sanctions it faces over the Ukraine conflict will not hurt its trade with Tehran. According to sources China has also raised new demands.
In response to Russia’s demands, U.S. Secretary of State, Antony Blinken stated on Sunday that the sanctions imposed on Russia over its Ukraine invasion have nothing to do with a potential nuclear deal with Iran.
There are speculations that Russia could use Iran as a route to bypass Western sanctions. On this, Eurasia’s Henry Rome of Eurasia Group stated, “Russia may intend to use Iran as a route to bypass Western sanctions. A written guarantee allowing Russia to do so is probably well beyond the realm of what Washington can offer in the midst of a full-scale war in Ukraine.”
Also supporting crude prices, the closure of Libya’s El Feel and Sharara oilfields resulted in the loss of 330,000 barrels per day (bpd), the National Oil Corporation (NOC) said on Sunday. Libya, an OPEC member, produced about 1.2 million bpd of crude in 2021, according to U.S. energy data.