NEW DELHI (REUTERS, BLOOMBERG) - Oil prices rose on Tuesday (March 8), though off the intra-day highs seen on Monday, with Brent surging past US$126 a barrel, as fears of formal sanctions against Russian oil and fuel exports spurred concerns about supply availability.
Brent crude futures for May climbed US$3.07, or 2.5 per cent from their Monday close, to US$126.28 a barrel at 4.56pm Singapore time.
US West Texas Intermediate (WTI) crude futures rose US$2.29, or 1.9 per cent, to US$121.69 a barrel.
Russia is the world’s top exporter of crude and oil products combined, with exports of around seven million barrels per day, or 7 per cent of global supply.
The United States, the world’s biggest oil consumer, may move on its own to ban Russian oil imports following Russia’s invasion of Ukraine.
However, Germany, the biggest buyer of Russian crude oil, has rejected plans for an energy embargo. Replacing the vast quantities of Russian fuel and oil in the market if they has raised supply concerns about oil traders, prompting the surge in prices.
A “ban of Russian oil exports of (about) 7 million barrels per day of crude and oil products is a big reason for a further expected spike in oil prices...Until then US$125 to US$130 would be a see-saw range,” said N.S. Ramaswamy, head of commodities, Ventura Securities.
A senior US official, speaking on condition of anonymity, told Reuters on Monday that no final decision had been made but “it is likely (to be) just the US if it happens.”
A Russian halt to its energy exports in response to the sanctions already enacted has also pushed prices higher.
Russia on Monday warned it could stop the flow of natural gas through pipelines from Russia to Germany in response to Berlin’s decision last month to halt the opening of the controversial new Nord Stream 2 pipeline.
If all of Russia’s oil exports were blocked from global markets, analysts have said prices could rise to US$200 a barrel, while Russia’s deputy prime minister said oil could soar to more than US$300.
An apparent slowdown in talks with Iran over its nuclear programme, which would end sanctions against its oil sales, is also adding to price pressures after the European Union envoy on the talks said it was up to Iran and the US to make political decisions to reach a deal.
“Additionally, a delay in lifting sanctions on Iranian oil is leading to a lot of jitters in the market,” said Sugandha Sachdeva, vice president, commodity and currency research, Religare Broking.
Oil supply disruptions come as inventories continue to fall worldwide. Five analysts polled by Reuters estimated on average that US crude stockpiles decreased by about 800,000 barrels in the week to March 4.
Some cracks are starting to show across oil markets though as soaring costs begin to bite, with refiners across Asia considering cuts to crude processing as margins shrink. Freight rates have also surged, adding to increasing pressure on refiners that had just recovered from the coronavirus pandemic.
Surging oil prices and supply fears are also boosting fuel prices, with diesel futures in Europe and the US touching the highest levels in decades. American pump prices are just cents away from an all-time high set 14 years ago.
“The question of what will drive oil lower and when will we know if demand destruction is setting in is becoming a far more topical and relevant conversation,” said SPI Asset Management managing partner Stephen Innes. “Disruptions to energy markets and the possibility of a geopolitical paradigm shift make for a highly unpredictable environment.”
Brent remains in deep backwardation, a bullish market structure where prompt contracts are more expensive than later-dated ones, highlighting the very tight supply backdrop. The global benchmark’s prompt spread was US$4.28 a barrel, compared with US$1.39 at the start of last month.
Some cracks are starting to show across oil markets though as soaring costs begin to bite, with refiners across Asia considering cuts to crude processing as margins shrink. Freight rates have also surged, adding to increasing pressure on refiners that had just recovered from the coronavirus pandemic.
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