March 31, 2023


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Oil rises above $105 after Russia’s attack on Ukraine

Oil rises above $105 after Russia's attack on Ukraine
  • Russia launches a large-scale invasion of Ukraine
  • The United States and the European Union promise the toughest sanctions against Russia
  • Brent and West Texas Intermediate reach their highest levels since 2014
  • Analysts warn of inflationary pressures

LONDON (Reuters) – Oil prices jumped on Thursday, with Brent crude rising above $105 a barrel for the first time since 2014 after Russia’s attack on Ukraine exacerbated concerns about disruption to global energy supplies.

Russia launched an all-out invasion of Ukraine by land, air and sea in the largest state-to-state offensive in Europe since World War II. Read more

In response, the United States and Europe promised the toughest sanctions against Russia.

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“If the sanctions affect payment transactions, Russian banks and possibly also insurance covering Russian oil and gas shipments, a supply disruption cannot be ruled out,” said Carsten Fritsch, analyst at Commerzbank.

Brent crude rose $8.24, or 8.5 percent, to $105.08 a barrel at 1045 GMT. US West Texas Intermediate crude jumped $7.78, or 8.5 percent, to $99.88.

Brent and West Texas Intermediate recorded their highest levels since August and July 2014, respectively.

“Russia is the third largest oil producer and the second largest oil exporter. With low inventories and dwindling spare capacity, the oil market cannot afford major supply disruptions,” said Giovanni Stonovo, an analyst at UBS.

“Supply concerns may spur oil storage activity, supporting prices.”

Russia is also the largest supplier of natural gas to Europe, providing about 35% of its supply.

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Global oil supplies remain tight with demand recovering from its lowest levels.

Which confirms the market tightness, the premiums of crude oil contracts for loading in one month over loading contracts in six months a measure that traders watch closely, hit a record $11.55 a barrel.

“The heightened uncertainty at a time when the oil market is already tight makes it vulnerable, and therefore prices are likely to remain volatile and elevated,” said Warren Patterson, head of commodity research at ING.

Analysts believe that Brent crude is likely to remain above $100 a barrel until significant alternative supplies are available from OPEC, US shale oil or Iran, for example.

The United States and Iran are engaged in indirect nuclear talks in Vienna that could lead to the lifting of sanctions on Iranian oil sales.

Senior Iranian security official Ali Shamkhani said on Twitter on Thursday that it is possible to reach a good nuclear deal with Western powers after making significant progress in negotiations. Read more

Analysts warn of inflationary pressures on the global economy from $100 oil, especially for Asia, which imports most of its energy needs.

“Asia’s Achilles heel remains its massive energy import needs, with higher oil prices set to take a significant chunk of income and growth over the next year,” said Frederic Neumann, an economist at HSBC.

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Additional reporting by Bozorgmehr Sharafuddin in London Additional reporting by Emily Chao in Beijing and Florence Tan in Singapore Editing by Jason Neely and David Goodman

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