Oil jumped as simmering geopolitical tensions between Russia and Ukraine kept the market on edge and volatility high.
West Texas Intermediate surged above $95 a barrel for the first time since 2014. Russia could take offensive military action or attempt to spark a conflict inside Ukraine as early as this week, National Security Advisor Jake Sullivan said Friday. Russia has repeatedly denied it plans to invade and its foreign minister said he would propose to continue diplomatic engagements with the West.
A potential Russian invasion of Ukraine could not only disrupt crude supplies but also potentially spark retaliatory sanctions by the U.S. Oil prices have soared in recent weeks on speculation that demand will outpace supply as the global economy rebounds from the pandemic.
“With a lack of clarity on the effect on oil and incredibly low inventories, the market is definitely worried here and buying,” said Scott Shelton, energy specialist at ICAP.
While crude has been swinging wildly in recent days as tensions around Ukraine grow, the underlying market remains robust. Physical barrels priced off a key global benchmark are hitting unprecedented levels, and the spread between between Brent crude’s two nearest futures contracts touched $2 a barrel, a bullish indicator.
The situation is entering a potentially decisive week. Russia has amassed troops near the Ukrainian border, with the U.S. warning last week that major military action my be imminent. Russian President Vladimir Putin has repeatedly said his country has no plans to invade its smaller neighbor.
Oil prices are trading at 2014 highs as the crisis reinforces a rally that’s been underpinned by soaring worldwide demand, supply interruptions and declining stockpiles. Its run of weekly gains was the longest since October, before the emergence of the omicron virus variant. A potential conflict, coupled with retaliatory U.S.-led sanctions, would risk upending global energy flows.
- WTI for March delivery rose $2.40 to $95.50 a barrel at 2:27 p.m. in New York
- Brent for April settlement rose $2.10 to $96.54 a barrel
Oil option markets saw a surge of activity after prices spiked on Ukraine tensions Friday. Traders are paying bumper premiums for bullish call options, where higher prices would profit a buyer. They’re the most expensive relative to bearish put options since 2019, according to Bloomberg data.
- European natural gas and electricity prices jumped more than 10% amid tensions over Ukraine.
- Oil importers are racing to assess the risk of purchasing Russian supplies as tensions over Ukraine enter a potentially decisive week.
- S&P Global Platts is proposing to add WTI Midland crude to the Dated Brent and Cash BFOE assessments for North Sea oil trading from June 2023.