Oil prices continued to climb on Wednesday as markets braced for severe disruptions in crude supplies from Russia as Moscow’s invasion of Ukraine continues.
The global benchmark, Brent crude, climbed as high as $113 a barrel on Wednesday, just days after breaking the triple-digit mark for the first time in seven years.
Although the United States and its allies intentionally avoided targeting Russia’s energy supplies, they hit the country with unprecedented financial sanctions. These actions have made oil buyers, such as refineries, wary of the risks posed by future sanctions if they enter into new contracts now.
And the prices of things like tankers are skyrocketing as more companies refuse to do business with Russia.
“The market panic is here,” wrote Louise Dickson, senior oil market analyst for Rystad Energy, on Wednesday. “The current market situation is extreme in every way.”
An effort to calm the markets backfires
The surge in crude prices comes even as countries have taken steps to stabilize energy markets and bring prices down.
On Tuesday, 31 countries, including the United States, announced they would release a total of 60 million barrels of crude oil from their strategic petroleum reserves.
It did not work. In the hours following the announcement, prices continued to climb.
Markets may have been disappointed by the size – 60 million barrels is less than a similar release hosted by the US last fall (which also failed to depress prices), and that reflects roughly 12 days of Russian exports.
And the announcement itself may have stoked panic, says Dickson, with Rystad Energy.
“It was a cue from the group, which historically only released stocks during the Gulf War, Hurricane Katrina and [the Libyan] civil war, that what lies ahead are higher oil prices,” she said.
Biden highlighted the release of emergency reserves in his State of the Union address on Tuesday night, saying it would “lower gas prices,” but it seems unlikely.
OPEC+ refuses to act
The mighty OPEC+ oil cartel gathered for a meeting on Wednesday to discuss the state of global oil markets and whether they should stick to plans to ramp up production or cut back. change to respond to a changing world.
The match only lasted 13 minutes. The result: No change in plans.
The group argued that the recent price volatility was driven by “current geopolitical developments” rather than underlying fundamentals such as supply and demand.
And the band says it responds to those fundamentals, rather than world events.
This was no surprise to analysts. Russia is a key member of the OPEC+ alliance, and other members, including Saudi Arabia, are benefiting from windfall revenues from high oil prices.
“For Russia and other members of OPEC+, continued cooperation is in their best interest,” said Stacey Morris, research director at index provider Alerian.
Natural gas and gasoline prices are also rising
Natural gas prices in Europe also soared, briefly hitting a new all-time high on Wednesday.
Fuel – which is used for electricity, heating and household appliances like cookers – is essential to Europe’s economy, and Russia is a major supplier.
Natural gas is still flowing through pipelines, but there are growing fears that pipelines may be interrupted or liquefied natural gas shipments by sea may be curtailed.
In the United States, gasoline prices are rising. Gasoline is produced by refining crude oil, and crude prices account for most of the price at the pump.
The national average for a gallon of gas is now $3.65, according to AAA, up 26 cents from a month ago.
Patrick de Haan, head of oil analysis at GasBuddy, predicts that the average price will reach $4 before the end of March.
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