Oil prices hit fresh highs on Wednesday, as the economic sanctions imposed on Russia started to bite and markets grew increasingly concerned about depleted supplies.
As at 1000 GMT, benchmark Brent Crude was ahead more than 5% to $110.13 per barrel, while West Texas Immediate was also trading higher 5%, at $108.62. Earlier in the session, Brent had risen above $113 while WTI was above $111.
It was the first time since 2014 that Brent had broken past $110.
Russia was the world’s third largest oil producer after the US and Saudi Arabia, and there were concerns global supplies would struggle as the conflict continued and sanctions hit home.
On Wednesday, the International Energy Agency, representing the US and other big energy consuming nations, said it would release 60m barrels of oil from its emergency stockpiles, in response.
Opec+, meanwhile, was due to meet later on Wednesday, but analysts did not expect the cartel and its allies – which included Russia – to increase their supplies beyond their current agreed level.
Victoria Scholar, head of investment at Interactive Investor, said: “The addition of [the IEA’s] strategic reserves [pale] into insignificance compared to the geopolitical supply shock from the war between Russian and Ukraine. Having rallied to $100 a barrel less than a week ago, oil is up another 10% with $120 a barrel the next potential target if Russian continues its aggression.”
Neil Wilson, chief market analyst at Markets.com, said: “Russia is starting a new phase of the campaign, bringing a lot more force to bear and shelling civilian areas. This poses the risk that the West will encounter growing pressure to sanction Russian oil and gas exports, with all that would entail.
“Centrica said it is urgently seeking to end its natural gas supply agreement with Gazprom – self-sanctioning already well underway. Exxon Mobil follow Shell and BP to say it will exit Russia, leaving $4bn in assets in doubt. We are seeing this with the container ships too, and banks. Moreover, oil traders are already starting to try to secure alternatives.”
There are currently no sanctions in place against buying Russian oil. But traders and tankers are understood to be increasing reluctant to deal in Russian oil. According to Bloomberg, oil trading firm Trafigura Group reportedly offered to sell a cargo of Urals grade crude for $18.60 a barrel less than an international benchmark on Tuesday, but was still unable to secure any bids.
Han Tan, chief market analyst at Exinity Group, said: “Restrictions on banking transactions already mean around 70% of Russia’s oil exports are finding no buyers.
“Opec+ is caught between Russia’s military attacks in the Ukraine, and the looming prospects of more sanctions from the West that specifically target Russia’s oil. Although it is widely expected that Opec+ will proceed with a modest 400,000 barrels per day hike next month, markets will be closely monitoring how Opec+ digests such supply-side risks. At the same time, the alliance must manage Russian sensitivities, as the country is one of its most influential members.”
