Oil extended gains as U.S. and other major economies agreed on a coordinated release of oil stockpiles after Russia’s invasion of Ukraine, according to people familiar with the matter.
Futures in New York climbed as much as 8%, trading above $103. Brent futures surged to above $105 a barrel. The International Energy Agency, which represents key industrialized consumers including Japan and Germany, agreed to deploy 60 million barrels from stockpiles around the world. Meanwhile, the European Union is discussing the exclusion of seven Russian banks from the SWIFT messaging system, including VTB Bank PJSC, in the latest list of financial penalties against Russia.
“You are looking at losing 5 million barrels of Russian exports,” said Bob Yawger, director of the futures division at Mizuho Securities USA. The coordinated strategic reserves “doesn’t compete with that. The market can’t afford to lose Russia’s barrels.”
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Wall Street banks including Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. have boosted their oil price forecasts, anticipating possible supply disruptions. Consultant OilX said the probability of heavy disruption of seaborne Russian crude and products is growing, which could push prices above $150 a barrel.
A 60 million barrel release from strategic oil reserves would be equivalent to less than six days of Russian output, and traders are weighing the potential impact. This release will mark the second from American crude reserves within a few months as soaring fuel costs become a growing political problem for U.S. President Joe Biden.
The invasion of Ukraine has upended commodity markets from oil to natural gas and wheat, piling inflationary pressure on governments. While the U.S. and Europe have so far stopped short of imposing sanctions directly on Russian commodities, the trade in those raw materials is seizing up as banks pull financing and shipping costs surge. Russia is the world’s third-biggest oil producer and, along with Saudi Arabia, an influential member of the OPEC+ alliance.
The turmoil sparked by the invasion will bring a new challenge in balancing a tightening market for OPEC+, which meets Wednesday to discuss output policy. Delegates said the cartel will probably stick to its plan of only gradually increasing supply. President Vladimir Putin spoke to the leader of the U.A.E. ahead of the meeting, while Saudi Arabia said it supports efforts to reduce escalation in Ukraine.
- West Texas Intermediate for April delivery rose $8.53 to $104.25 a barrel as of 10:45 a.m. in New York
- Brent for May settlement gained $7.97 to $105.94 a barrel
Indications of just how tight supply has been is showing in the market’s structure. Brent remains deep in backwardation, where prompt barrels command higher prices than later-dated cargoes. The benchmark’s prompt timespread was $3.93 a barrel in backwardation after surging on Tuesday. Several other gauges were the firmest since at least 2007.
Talks on the coordinated release are currently focused on tapping 30 million barrels from the U.S. Strategic Petroleum Reserve and an equivalent amount from a group of other countries, the people said. No decisions have been made and the discussions could continue for several more days, they said. Prior to the pandemic, global oil consumption was about 100 million barrels a day.
The invasion of Ukraine is also prompting oil companies to wind up their operations in Russia. Shell Plc and BP Plc have announced they will pull out, while TotalEnergies SE said Tuesday it will no longer invest in new projects in the country.