REUTERS/Shamil Zhumatov
- Oil prices neared $100 a barrel after Russia ordered troops into Ukraine, fuelling supply concerns.
- Putin’s recognition of two breakaway regions in Ukraine could lead to shipments being obstructed.
- Additional supply from the OPEC+ can’t be counted on for now, analysts say.
Oil prices rose to seven-year highs Tuesday after Russian President Vladimir Putin ordered troops to enter eastern Ukraine, raising the risk of disruptions to energy shipments.
Putin’s move followed his signing of a decree that recognizes the two eastern Ukrainian provinces of Donetsk and Luhansk as independent states. Both these provinces are controlled by pro-Russian separatists, fuelling fears that war will be increasingly difficult to avoid.
“This constitutes a noticeable escalation of the Russia-Ukraine conflict and is likely to see the West respond by imposing tough sanctions on Russia,” said Commerzbank’s Carsten Fritsch.
Brent crude futures rose as high as 3.6% to $98.94 a barrel and West Texas Intermediate rose as much as 4.4% to $94.65 a barrel as of 10:04 a.m. GMT, approaching the $100-a-barrel level for the first time since 2014.
“Seeing oil prices soar to a seven-year high today is reminiscent of the 1970s,” Simon Tucker, head of energy at Infosys Consulting, said in reference to the 1973 oil crisis. “We have seen this before — prices skyrocket, the public is cornered into using less, and ultimately, it’s the poorer countries that suffer the most.”
Oil was already trading at record highs on concerns of possible disruptions to supply from major producer Russia. So Tuesday’s price gains weren’t surprising. But since Moscow has consistently denied any plans to invade Ukraine, there were hopes prices would stabilize.
“The biggest moves we’ve seen from clients so far is buying into oil prices, expecting the recent escalation to hit supply and push energy prices higher,” said Walid Koudmani, chief market analyst at financial brokerage XTB. There’s a strong chance oil could rise above $100 a barrel, depending on Russia’s response to economic sanctions, he added.
Investors are pricing in other factors that are unlikely to offset Russia and Ukraine’s tensions, since analysts say additional supply from the OPEC+ can’t be relied upon for now.
After Saudi Arabia and the United Arab Emirates rejected calls to pump more oil to ease price pressure over the weekend, Iraq has also declined a more marked expansion of production by OPEC+.
Iraq’s oil minister told Bloomberg on Tuesday that there’s no need to produce more because “the market will have more and more oil.”
Global markets were rattled on Tuesday after Russia’s recognition of the two breakaway Ukrainian regions fuelled further tensions. UBS suggested investors should hedge their portfolios by allocating to commodities and energy stocks.
“Energy prices would likely rise in the event of an escalation around Ukraine, as well as if cooler heads prevail amid rising demand and somewhat constrained supply,” UBS strategists said in a Tuesday note.
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