SYDNEY (BLOOMBERG, REUTERS) - Oil soared in Asia on Monday (March 7) - jumping as much as 18 per cent early in the session - after reports that the United States was discussing a ban on Russian crude imports sent shock waves through an already-reeling market.
In the first few minutes of trade Brent crude reached US$139.13 a barrel and US West Texas Intermediate (WTI) hit US$130.50, both benchmarks striking their highest since July 2008.
Brent crude quickly pared around half those gains to trade near US$130 a barrel at 4pm Singapore time, a level that’s still exacerbating fears of a major inflationary shock to the global economy. WTI crude climbed 9 per cent to around US$126.
The Biden administration is considering whether to prohibit Russian oil imports into the US without the participation of allies in Europe, at least initially, according to two people familiar with the matter.
That came after Secretary of State Antony Blinken told NBC over the weekend that the White House is in “very active discussions” with its European allies about a ban to tighten the economic squeeze on President Vladimir Putin.
The US has so far resisted restrictions on Russian crude imports due to concerns about the impact of rising prices on consumers, but most buyers are refusing to take it, resulting in an embargo in all but name.
Analysts at Bank of America said if most of Russia’s oil exports are cut off, there could be a five million barrel or larger shortfall, and that means oil prices could double from US$100 to US$200 a barrel. JP Morgan analysts said this week that oil could soar to US$185 per barrel this year.
Both contracts hit their highest-ever in July 2008, with Brent at US$147.50 a barrel and WTI at US$147.27.
Russia is the world’s top exporter of crude and oil products combined, with exports at around seven million barrels per day of oil and refined products, or 7 per cent of global supply.
There are efforts underway to try and increase supply. Two senior US officials met with members of Venezuelan President Nicolas Maduro’s government in Caracas to discuss global oil supplies and the country’s ties to Russia, according to people familiar with the matter. Iran, meanwhile, made progress toward a deal with world powers over its nuclear programme, which could pave the way for sanctions on Tehran’s oil to be lifted by the third quarter.
In more worrying news for supply, however, Opec producer Libya said its oil output fell below one million barrels a day because of a domestic political crisis.
Saudi Arabia hiked prices of its main crude blends for all regions following the surge in oil futures, raising costs for refiners that may be forced to cut processing rates should profit margins shrink. The kingdom boosted its Arab Light crude for next month’s shipments to Asia to US$4.95 a barrel above the benchmark it uses. That’s the widest in data going back to 2000.
Global oil prices have spiked 65 per cent since the start of 2022, along with other commodities, raising concerns about world economic growth and stagflation. China, the world’s No. 2 economy, is already targeting a slower growth of 5.5 per cent this year.
At the weekend, the International Monetary Fund warned that the war, as well as the subsequent sanctions imposed on Russia, will have a “severe impact” on the global economy. “While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,” the IMF said.
“With the surge in geopolitical tensions, uncertainty and anxiety, it would be quite difficult to accurately gauge the top of this rally,” said John Driscoll, founder of JTD Energy Services in Singapore. “During the 2008-2009 financial crisis, demand destruction kicked in around US$150 a barrel,” but this spike is supply-driven and may send prices beyond that level, he said.
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