SINGAPORE - Oil surged on Wednesday after Russian President Vladimir Putin ordered a partial mobilisation to hold on to occupied territories in Ukraine, an escalation that could lead to further disruption to energy supplies.
West Texas Intermediate jumped 2.6 per cent to US$86.12 a barrel as of 4.45pm Singapore time, while Brent crude surged 2.54 per cent to US$92.92.
Russia will take necessary steps to defend its sovereignty and will defend territory with all available means, Mr Putin said.
The move threatened to escalate the conflict further after the Kremlin has moved to stage sham votes on annexing the regions of Ukraine it still controls.
“Supply disruption concerns are supporting oil,” said Giovanni Staunovo a commodity analyst at UBS Group.
Mr Putin’s comments also sparked a bid for US treasuries and haven assets including gold. He also hinted at the use of nuclear weapons in the conflict, while Defense Minister Sergei Shoigu told state TV that 300,000 reservists would be called up under Mr Putin’s order.
Tension is escalating in Ukraine ahead of a decision by the Federal Reserve on monetary policy. The central bank is expected to raise interest rates by 75 basis points on Wednesday, and put numbers on the "pain" it has been warning of when it publishes new economic projections.
Crude has been on track for its first quarterly loss in more than two years as concerns over a global economic slowdown weigh on the outlook for energy demand. The Fed decision will be followed by other central banks from Europe to Asia, which are also expected to increase borrowing costs.
"If the Fed delivers another hawkish surprise this week, it could mean further downside for oil prices," said market strategist Charu Chanana at Saxo Capital Markets in Singapore. "Over the medium term, oil demand is still expected to remain strong as a tough European winter could mean more gas-to-oil switching, while Russia-Ukraine tensions are also on the rise."
Despite the weak short-term outlook, Saudi Aramco said spare output capacity in the oil market might be wiped out once economies rebound, citing a lack of investment in fossil fuels as the main reason for the energy crisis. Crescent Petroleum chief executive officer Majid Jafar echoed the sentiment, saying prices will remain high on "chronic underinvestment" in the sector.
The industry-funded American Petroleum Institute reported US crude stockpiles rose more than one million barrels last week, according to people familiar with the figures. Inventories at the key storage hub at Cushing, Oklahoma, and nationwide petrol supplies both expanded. BLOOMBERG