BENGALURU: Oil prices surged on Tuesday as the United States and Britain moved to ban Russian oil imports, a decision that is expected to worsen disruptions in the global energy market as Russia is the second-largest exporter of crude.
The oil market has gained more than 27% since the beginning of March as the Russian invasion of Ukraine intensified, and the United States and other countries brought more sanctions designed to cripple the Russian economy. That has upended the energy markets, as Russia is the largest exporter of crude and fuel products combined in the world.
US President Joe Biden announced a ban on Russian oil and other energy imports on Tuesday, while Britain said it will phase out the import of Russian oil and oil products by 2022.
Benchmark Brent crude for May shot up $8.06, or 6.5%, to $131.27 a barrel by 12:09 p.m. EST (1709 GMT). US crude for April delivery was up $7.54, or 6.3%, at $126.94 a barrel.
Even though the United States imports very little oil from Russia, the ban is “one more source of supply loss,” said Matt Smith, lead oil analyst at Kpler.
“It’s just one more escalation in a series of events that have pushed crude and product prices higher,” he said.
The import bans could send global oil prices spiralling to $200 a barrel, analysts at Oslo-based consultancy Rystad Energy said.
“How high can oil prices go? Pick a number, this is a market in disarray,” Mike Tran, analyst at RBC Capital Markets, said in a note early on Tuesday.
Many buyers are already avoiding Russian oil so as not to become entangled in existing sanctions, and Shell said it would stop all spot purchases of Russian crude after drawing criticism for a purchase made on March 4.
Meanwhile some raised concerns that the rally was overdone.
“We feel like this might be a little overbought at this moment,” said Gary Cunningham, director of market research at Tradition Energy.
“We would expect prices to start to retract at some point soon as countries start making clear which ones will join in the embargo. We don’t see any type of widespread impact from US action,” he said. Goldman Sachs raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, saying that the world economy could face the “largest energy supply shocks ever” because of Russia’s key role.
Dimming expectations for an imminent return of Iranian crude to global markets have added to upward pressure on prices amid a slowdown in talks between Tehran and world powers over its nuclear activity.
The supply disruptions come as inventories continue to fall worldwide. Five analysts polled by Reuters estimated on average that US crude stockpiles decreased by about 800,000 barrels in the week to March 4.
The poll was conducted before weekly inventory reports from the American Petroleum Institute on Tuesday and the US Energy Information Administration on Wednesday.
Media reports about the International Energy Agency’s readiness to release more oil from emergency stockpiles had no impact on the rally. “Ultimately, the IEA is not announcing significant action,” said Craig Erlam, senior market analyst at OANDA. “In this market, words are not going to have an impact.”
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