Uncertainty sent oil prices soaring at Sunday’s trade open as more Russian troops massed on Ukraine’s borders, but fell later overnight as reports said the President Biden would consider direct talks with his Russian counterpart as long as Russia does not invade.
Oil prices had remained essentially flat over the past week as traders anticipated a potential nuclear deal with Iran that could see the country bring millions of gallons of oil to market. But with tensions soaring along the Russian-Ukrainian border, oil markets opened in the evening, trading more than a dollar a barrel higher. In a sign of market volatility, prices fell later Sunday night and were down about 50 cents a barrel.
President Biden and other senior US officials have said Russian President Vladimir V. Putin has already moved to invade Ukraine despite the threat of crippling sanctions. Any invasion would most likely halt Russian natural gas and oil shipments to parts of Europe, and then be followed by a decline in Russian energy purchases by the West. Nevertheless, negotiations continued on several fronts.
The United States and many other industrialized nations will most likely release millions of barrels of oil from their strategic reserves as soon as a major invasion occurs. There is also talk in Washington of suspending federal gasoline taxes. Such measures could help to limit prices at the pump, at least for a short period.
The national average price for a gallon of gasoline rose nearly 4 cents over the past week to $3.53, about 90 cents higher than a year ago. Gasoline prices at the pump generally follow global oil price trends of a week or two.
Despite the growing likelihood of conflict, the US benchmark oil price fell nearly 2% last week, while the global benchmark price rose by less than a dollar a barrel. Both benchmarks remain above $90 a barrel, the highest level since 2014.
With prices fluctuating late on Sunday as traders watched developments closely, U.S. oil benchmark West Texas Intermediate was around $92 a barrel, while global Brent benchmark was around $94 a barrel.
The United States is not a big importer of Russian oil, but Russia supplies about one in every 10 barrels the world economy consumes as the third-largest producer after the United States and Saudi Arabia. Russian oil exports are mainly destined for Europe and Asia, and global markets remain tight as production has not kept up with the economic rebound from the Covid-19 pandemic.
US oil production has gradually increased in recent months, and Saudi Arabia and the United Arab Emirates are said to have spare production capacity. But it would take a nuclear deal with Iran to quickly send new barrels to world markets. Iran has up to 80 million barrels in storage that it could sell relatively quickly and it could increase production to 1.2 million barrels a day in eight months. But in a market of 100 million barrels a day, that wouldn’t solve shortages in the event of a protracted war in Eastern Europe.