Oil prices jumped on Monday due to escalating sanctions against Russia over its invasion of Ukraine, prompting President Vladimir Putin to put the nuclear deterrent of his countries on high alert.
Brent crude rose back above $100 a barrel, initially jumping more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world’s second-largest producer could be disrupted. Russia accounts for around 10% of the world’s oil supply.
As of 0643 GMT, Brent crude futures were up $4.69, or 4.8%, at $102.62, after hitting a high of $105.07 a barrel in early trading . Last week, the benchmark hit a more than seven-year high of $105.79 after Russia began its invasion of Ukraine.
The April Brent contract expires Monday. The May contract rose $5.28 to $99.40.
U.S. West Texas Intermediate (WTI) crude futures rose $5.34, or 5.8%, to $96.93 a barrel, after hitting a high of $99.10 earlier in the day. . WTI climbed as high as $100.54 last week.
“The moves by the US and Europe to remove some Russian banks from the SWIFT system have raised fears of a near-term supply disruption,” said Daniel Hynes, commodities strategist at ANZ.
“The supply risk is the greatest we’ve seen in some time and it comes in a tight market,” he said.
Putin upped the ante on Sunday, ordering Russia’s ‘deterrent forces’ – which use nuclear weapons – to go on high alert, citing aggressive statements from NATO leaders and the range of economic sanctions imposed on Russia by the West. Russia calls its actions in Ukraine a “special operation”. Read more
“President Putin’s decision to put Russian nuclear forces on high alert is a clear and worrying escalation that can only support oil prices,” said Stephen Brennock of oil broker PVM.
Gains were capped as it was still unclear which banks would be affected by SWIFT sanctions and whether energy payments would be exempt, said OANDA analyst Jeffrey Halley.
The market stabilized on hopes of talks between Russia and Ukraine on Monday on the Belarusian border, the first talks since Russia invaded its neighbor last week. Read more
“I’m absolutely sure that if there’s any progress at this meeting, we’re going to see a sharp turnaround in the markets – we’ll see stocks go up, the dollar go up and oil go down,” Halley said.
Amid the war in Ukraine, the Organization of the Petroleum Exporting Countries (OPEC), Russia and their allies – collectively called OPEC+ – are due to meet on March 2. The group is expected to stick to plans to add 400,000 barrels per day (bpd) of supply in April.
Ahead of the meeting, OPEC+ revised down its oil market surplus forecast for 2022 from around 200,000 bpd to 1.1 million bpd, underscoring the tightness in the market. Read more
Meanwhile, a separate report showed that OPEC+ in January produced 972,000 bpd below their agreed targets.
“With the market so tight, with OPEC producers also struggling to ramp up production, any Russian supply issues would be felt quite significantly across the broader market,” ANZ’s Hynes said.