Oil price shoots past US$100, highest in 8 years

Oil prices surged, with Brent breaching US$100 a barrel for the first time since 2014 on Thursday as Russia attacked Ukraine, exacerbating concerns that a war in Europe could disrupt global energy supplies.

After Russian President Vladimir Putin authorised what he called a special military operation, Ukraine’s Foreign Minister Dmytro Kuleba said in a tweet that Russia had launched a full-scale invasion of Ukraine and was targeting cities with weapons strikes.

Brent crude hit a high of US$102.48 a barrel, the loftiest since September 2014, and was at US$102.06 a barrel at 0547 GMT, up US$5.22, or 5.4%.

US West Texas Intermediate (WTI) crude futures jumped US$4.85, or 5.3%, to US$96.95 a barrel, after rising to as much as US$97.40, the highest since August 2014.

Oil prices have surged more than US$20 a barrel since the start of 2022 on fears that the US and Europe would impose sanctions on Russia’s energy sector, disrupting supplies.

Russia is the world’s second-largest oil producer, mainly selling its crude to European refineries, and is the largest supplier of natural gas to Europe, providing about 35% of the latter’s supply.

“Russia’s announcement of a special military operation into Ukraine has pushed Brent to the US$100/bbl mark,” said Warren Patterson, head of ING’s commodity research.

“This growing uncertainty during a time when the oil market is already tight does leave it vulnerable, and so prices are likely to remain volatile and elevated,” he added.

Western nations and Japan on Tuesday punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine, and threatened to go further if Moscow launched an all-out invasion of its neighbour. So far, there are no sanctions on energy trade.

“It’s not just geopolitical risk that is the problem but the further straining of supply,” OCBC economist Howie Lee said.

“Russian oil supply will disappear overnight if faced with sanctions… and Opec can’t produce fast enough to cover this gaping hole.”

Some members of the Organization of the Petroleum Exporting Countries (Opec) said there is no need for the group and its allies to increase output further as a potential deal between Iran and world powers will increase supplies. Some Opec members are already struggling to meet current targets.

Japan and Australia said on Thursday they were prepared to tap their oil reserves, together with other International Energy Agency (IEA) member countries, if global supplies were hit by hostilities in Ukraine.

Analysts are also warning of inflationary pressure on the global economy from US$100 oil, especially for Asia, which imports most of its energy needs.

“Soaring oil prices come at an especially difficult time,” HSBC economist Frederic Neumann said.

“Asia’s Achilles heel remains its vast import needs for energy, with surging oil prices bound to take a hefty bite out of income and growth over the coming year.”

The US and Iran have been engaged in indirect nuclear talks in Vienna, in which a deal could lead to the removal of sanctions on Iranian oil sales and increase global supply.

Iran on Wednesday however urged Western powers to be “realistic” in talks to revive the 2015 nuclear deal, and said its top negotiator was returning to Tehran for consultations, suggesting a breakthrough in its discussions is not imminent.

Additionally, US crude stockpiles rose six million barrels last week while distillate stocks fell, according to market sources who were citing American Petroleum Institute figures late on Tuesday.

Ahead of government data on Thursday, analysts forecast a 400,000-barrel build in crude and a drawdown in fuel stockpiles.

Gasoline inventories rose by 427,000 barrels and distillates stockpiles fell by 985,000 barrels, the API data showed according to the sources, who spoke on condition of anonymity.