Oil jumps to above US$123 as Biden, allies prepare to step up pressure on Russia
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Oil benchmarks have been steadily rallying since Russia invaded Ukraine a month ago.
PHOTO: EPA-EFE
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SINGAPORE (BLOOMBERG) - Oil fluctuated as investors weighed threats to supplies from the month-old war in Ukraine, with President Joe Biden set to address the crisis on a key trip to Europe that may see more sanctions imposed on Russia.
Global benchmark Brent swung between gains and losses near US$121 a barrel. The White House and European Union are close to a deal aimed at slashing the region’s dependence on Russian energy, although that may focus primarily on flows of natural gas.
Oil rose more than 5 per cent on Wednesday after US stockpiles fell and a Black Sea export terminal halted loadings following bad weather.
Although many buyers are shunning Russian crude, especially former European purchasers, Asian users may be stepping in to take barrels at discounted rates. China’s oil refiners are discreetly purchasing cheap Russian crude, traders say, and India processors have also scooped up some of the volumes.
Oil has rallied more than 50 per cent this year, hitting the highest level since 2008 earlier this month, as Russia’s invasion of Ukraine threw global commodity markets into turmoil. While the US and UK have already moved to bar flows of Russian crude, there’s greater reluctance among European Union (EU) members to follow suit given the region’s higher dependence. Trafigura Group forecast this week that crude prices are set to keep on rising, potentially hitting US$150 a barrel.
In Asia, China’s worst coronavirus outbreak since the start of the pandemic has spurred some refiners to cut back operations, with analysts rethinking demand estimates as strict lockdowns curb consumption. Independent refiners in Shandong have been reducing processing rates.
“There are worries around both supply as well as demand, which may keep prices rather volatile,” Will Sungchil Yun, senior commodities analyst at VI Investment Corp in Seoul, said by phone. “But if fresh sanctions are slapped on Russia, we’re looking at another leg up.”
In Brussels on Thursday, Mr Biden will join back-to-back summits with Nato, the Group of Seven and the EU. Then on Friday the president visits Poland, which is hosting the biggest number of displaced Ukrainians.
As the war drags on, there’s a growing willingness on both sides to use Russian energy supplies as a weapon. On Wednesday, President Vladimir Putin ordered the nation’s central bank to develop a mechanism to force European customers to pay for Russian natural gas in rubles, spurring a rally in prices.
Oil markets remain deeply backwardated, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread - the difference between its two nearest contracts - has widened to US$3.91 a barrel in backwardation, up from 41 cents at the start of the year.
