Oil yesterday surged above US$105 a barrel for the first time since 2014 as Russia attacked sites across Ukraine, triggering fears of a disruption to energy exports at a time of already tight supplies.
Brent jumped more than 9 percent after Russian President Vladimir Putin ordered Russian troops into Ukraine. Kyiv called it a “full-scale invasion” and announced martial law.
Natural gas in Europe rose as much as 41 percent, while metals, including gold, aluminum, copper and nickel, and food prices also spiked, piling on inflationary pressures. Russia is a key seller of commodities to global customers, with Europe relying on the nation for about one-quarter of its oil and one-third of its gas.
Photo: Reuters
The escalation has spooked a market that was already under stress, as oil supplies around the world fail to keep pace with a vigorous recovery in demand as the COVID-19 pandemic recedes. The OPEC+ coalition, led by Russia and Saudi Arabia, is struggling to restore production quickly enough, prompting some of the biggest market players to warn of higher prices.
OPEC+ is to meet on Wednesday next week to decide on output for April. As of Wednesday, delegates from some of the biggest members were saying that triple-digit oil prices would not cause them to pump faster. Their current strategy is to add 400,000 barrels a day of crude to the market each month.
It is possible that OPEC would increase production if there is further escalation, Crystol Energy founder Carole Nakhle said.
“If they think this will threaten the stability of oil markets, I can see them putting more barrels on the market,” she said on a podcast produced by Dubai-based consultant and publisher Gulf Intelligence.
It would probably be down to the likes of Saudi Arabia and the United Arab Emirates to boost output because many of the group’s other members would struggle, Nakhle said.
“The oil market will now wait to see how Western nations respond to Russia’s latest actions,” said Warren Patterson, head of commodities strategy at ING Groep NV. “We will likely see even further volatility in the market, as well as the need to price in a larger risk premium.”
The US and Europe will almost certainly respond in the coming hours and days with a far-reaching package of sanctions, Eurasia Group said, adding that Russia’s expulsion from the SWIFT international payment system might even be in play.
Crude would probably average US$110 in the second quarter of the year if the Ukraine conflict escalates, JPMorgan Chase & Co said this week, before yesterday’s developments.
US President Joe Biden’s administration is considering tapping its emergency reserves of oil again in coordination with allies to counter the surge in prices, Bloomberg reported on Wednesday.
Brent for April delivery was at US$105.20 a barrel at 10:38am in London. West Texas Intermediate was at US$100. Futures curves are steeply backwardated, a bullish pattern whereby near-term deliveries are more expensive than later ones as physical traders rush to secure supplies.
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