Oil pushed higher on concern that Russia’s invasion of Ukraine might impede shipments, with relative calm restored after a wild session.
Brent crude climbed about 2 percent to trade near US$101 a barrel after soaring more than 9 percent at one point on Thursday.
Buyers are shunning Russia’s flagship Urals grade on concern over potential problems with it due to the attack, while China also said it will hold off on new purchases of the variety for the same reason.
Photo: Reuters
The US imposed its toughest-ever sanctions on Russia as its tanks and troops moved closer to the Ukrainian capital, but said restrictions on currency clearing would include carve-outs for energy payments, a crucial source of revenue for Moscow.
US President Joe Biden said that Russia would not be barred from the SWIFT international banking network because Europe opposed that action.
Despite that, some European lenders are scaling back exposure to Ukraine and Russia in a threat to the credit lines essential to trade.
“The initial concerns that oil would be caught up in any sanctions on Russia has eased, resulting in prices pulling back from yesterday’s rally,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group.
“However, steep discounts being offered for Russian crude are still not receiving bids. This suggests there may still be some supply issues if banks can’t facilitate trade in the short term,” Hynes said.
Russia’s invasion of Ukraine has spooked a global oil market that was already perilously tight due to the inability of supply to keep up with the demand recovery from the COVID-19 pandemic.
Biden said that the US is working with other major consuming nations on a coordinated reserves release.
However, any such sales would need to be large to have a major impact on prices.
Japan and Australia have indicated that they might be part of an international reserves release, but China said it had no immediate plans to intervene in oil markets.
A spokesperson for Beijing said it would only consider such a move when the geopolitical situation had stabilized.
South Korea said it was preparing to take action if there is a disruption to energy shipments.
Oil stockpiles at Cushing, Oklahoma, continued to slide, falling to the lowest since September 2018, data released on Thursday showed.
Inventories at the hub are fast approaching critical levels and could set the stage for a further run-up in futures, as it is the delivery point for the benchmark US contract.
There is a risk that oil will rise to US$125 a barrel should demand destruction be required to balance the market, Goldman Sachs Group Inc said in a research note.
The recent rally threatens the prospects of a nuclear agreement with Iran that would add to global supply, as the producer can access higher cashflows from record-high sales to China, analysts including Jeffrey Currie said.
Brent crude moved deeper into backwardation, highlighting investor nervousness over the tight supply situation.
The global benchmark’s prompt spread was US$3.70 a barrel in backwardation compared with US$1.82 two weeks ago.
The discount of West Texas Intermediate to Brent is near its widest since April 2020, possibly incentivizing traders to explore arbitrage opportunities.
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