Thu, Mar 03, 2022 page10

• Oil tops US$110 as supply fears rise

  ‘VERY SERIOUS’: The global oil market had tightened prior to Russia’s invasion of Ukraine, while the disruption to Russian exports could drive oil prices even higher

  • Bloomberg
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  Oil extended its relentless rally above US$110 per barrel before an OPEC+ meeting, as the International Energy Agency (IEA) said that global energy security is under threat following Russia’s invasion of Ukraine.

  Futures in London and New York jumped above the threshold, with West Texas Intermediate hitting the highest since 2013.

  The situation across energy markets is “very serious,” IEA executive director Fatih Birol said on Tuesday, as the US and others agreed to an emergency release of oil reserves.

  “Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” Birol said in a statement.

  Investors anticipated a response from OPEC+ as members were to meet yesterday to discuss next month’s supply, although only a modest increase was expected despite the turmoil.

  The global oil market had tightened significantly prior to the invasion after economies rebounded strongly from the COVID-19 pandemic, and the disruption to Russian exports has the potential to drive crude prices even higher.

  Traders are paying the most in more than two years betting that it will happen, while banks, including Morgan Stanley, have boosted near-term forecasts.

  Governments worldwide are facing rising inflationary pressure as the fallout from Russian sanctions drives energy, metals and grains prices higher.

  That prompted the US and its allies to release 60 million barrels of strategic oil reserves to tame prices, although a similar action late last year had little effect.

  RBC Capital Markets said that the release was “simply not large enough to cool arguably the strongest fundamental oil backdrop in over a decade.”

  Russia’s flagship Urals crude oil was offered for sale at a record discount, but got no bidders, highlighting the caution from buyers as they navigate mounting financial sanctions.

  While the US and its allies have so far stopped short of imposing penalties directly on Russian commodities, Russian trade is halting as banks pull financing and shipping costs sharply increase.

  “I can only see oil heading higher,” Australia and New Zealand Banking Group Ltd senior commodities strategist Daniel Hynes said. “The market is waking up to the reality that we are already experiencing constraints on Russian oil without any formal sanctions. It’s hard to see what OPEC can do.”

  Brent remains in deep backwardation, a bullish structure where prompt barrels are more expensive than later-dated cargoes, indicating nervousness over tightening supply. The benchmark’s prompt spread was US$4.99 per barrel, compared with US$1.39 at the start of last month.

  Russia’s invasion is entering a deadly new phase, which could result in more sanctions. US President Joe Biden is facing pressure from the US Congress to cut off US imports of Russian oil and gas to escalate the cost to Russia, which would likely provide another boost to global prices.

  The impact of Russia’s invasion of Ukraine has reverberated far and wide. Oil majors such as BP PLC, Shell PLC and Exxon Mobile Corp are exiting Russia, while banks across the globe, including in Singapore, are restricting trade financing for raw materials.

  Even the residents of a tiny archipelago off Scotland were doing everything they could to stop a Russian oil tanker from docking.
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