Oil soars past $110/bbl on growing Russian supply disruptions

by · Financial Post

NEW YORK — Oil prices surged beyond $110 per barrel on Wednesday as traders scrambled to seek alternative oil sources due to supply disruptions after sanctions on Russian banks amid the intensifying Ukraine conflict, while U.S. crude inventories fell unexpectedly, underscoring the already tight market.

Brent crude futures hit their highest since June 2014 at $113.94 a barrel, before easing to $109.85 by 10:46 a.m. EST (1546 GMT), up $4.88, or 4.7%.

U.S. West Texas Intermediate (WTI) crude futures jumped more than $9 to $112.51 a barrel, hitting the highest since May 2011 before losing some steam to trade up $4.55, or 4.4%, at $107.96.

“Investors, traders, and politicians alike are scrambling to address the worsening Russia-Ukraine standoff. The initial upward price reaction after the conflict in Ukraine started six days ago is only intensifying,” said Rystad Energy analyst Louise Dickson.

“The current realistic scenario is that a large portion of Russian crude oil, as well as refined oil products, will no longer be palpable to the market and create a supply deficit for the duration of the armed conflict.”

That tightness was evident in weekly U.S. oil inventory figures, which showed crude stocks fell by 2.6 million barrels last week, compared with expectations for a build.

“This is playing into the tight market scenario, which is going to keep the market very nervous,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.

U.S. inventories at the Cushing, Oklahoma delivery hub for WTI fell to their lowest since 2018, while the U.S. strategic reserves dropped to a near 20-year low – and that was before another release announced by the White House on Tuesday in tandem with other industrialized nations.

The White House said that the United States is “very open” to imposing sanctions on Russia’s oil and gas industry.

Trade in Russian oil was in disarray as producers postponed sales, importers rejected Russian ships and buyers worldwide searched elsewhere for crude as Western sanctions and pullouts by private companies squeezed Russia.

Russian oil exports account for about 8% of global supply.

Exxon Mobil on Tuesday said it would exit Russia oil and gas operations as a result of Moscow’s invasion of Ukraine. The decision will see the company pull out of managing large production facilities on Sakhalin Island in Russia’s Far East.

The Organization of the Petroleum Exporting Countries, Russia and allies, together known as OPEC+, agreed to again raise their monthly output by 400,000 barrels per day.

U.S. President Joe Biden warned Vladimir Putin that the Russian leader “has no idea what’s coming” in a State of the Union speech dominated by Russia’s invasion of Ukraine.

Meanwhile, a coordinated release of 60 million barrels of oil agreed on Tuesday by International Energy Agency member countries failed to reassure the market and prices rose after the announcement.

In a move likely to exacerbate global supply tightness, buyers are avoiding oil from the CPC pipeline originating in Kazakhstan, source of more than 1% of the world’s supply, owing to sanctions concerns.

(Additioanl reporting by Sonali Paul in Melbourne and Muyu Xu in Beijing; Editing by Marguerita Choy and Jan Harvey)