Oil prices surged to seven-year highs on Wednesday as supply disruption fears mounted following hefty sanctions on Russian banks amid the intensifying Ukraine conflict, while traders scrambled to seek alternative oil sources in an already tight market.
Brent crude futures gained $5.30, or 5 per cent, to $110.23 a barrel at 0419 GMT, a level last seen in July 2014.
US West Texas Intermediate (WTI) crude futures were up $5.02, or 4.8 per cent, to $108.41, after earlier hitting the highest since September 2013.
"Trade disruptions are starting to get people's attention," said Westpac economist Justin Smirk.
“Issues around trade finance and insurance — that’s all impacting exports from the Black Sea. The supply shocks are unfolding,” he said.
Russian oil exports account for around 8 per cent of global supply.
Higher oil prices will, if sustained, feed through in the next few weeks to higher prices at the pumps across Ireland. Petrol prices, currently over €1.80 a litre, could approach the €2 a litre mark if crude oil prices approach €120 a barrel. With traders shunning Russian oil, prices are likely to remain under upward pressure in the short term.
Meanwhile wholesale gas prices shot up by over 30 per cent on Wedneday to around €160 per megawatt hour, having touched €185 earlier in the day. While Russian gas is continuing to flow, analysts fear an interuption in supply.
Higher gas prices, if sustained, would feed through to higher gas and electricity prices for consumers, threatening further big rises in home energy costs on top of those which have already happened.
EU governments are considering whether special measures are needed to help consumers in the wake of these potential rises. Up to recently,the Irish Government had said it would not act further beyond measures already planned, including the €200 household energy credit, but any emergency EU measures would be
Exxon Mobil on Tuesday said it would exit Russia oil and gas operations as a result of Moscow's invasion of Ukraine. The decision will see the firm pull out of managing large production facilities on Sakhalin Island in Russia's Far East.
At the same time, while Western powers have not imposed sanctions on energy exports directly, US traders at hubs in New York and the US Gulf are shunning Russian crude.
“People are not touching Russian barrels. You may see some on the water right now, but they were bought before the invasion. There won’t be much after that,” one New York Harbor trader told Reuters.
State-run Indian refiner Bharat Petroleum Corp is seeking extra oil from Middle Eastern producers for April, fearing Western sanctions against Russia could hit deliveries of Urals crude.
Top oil exporter Saudi Arabia may sharply hike prices of crude for Asia in April, trade sources said, with differentials for most grades hitting all-time highs as global supplies tighten over financing and shipping issues from sanctions on Russia.
A co-ordinated release of 60 million barrels of oil by International Energy Agency member countries agreed on Tuesday put a lid on market gains, but analysts said that would only provide temporary relief on the supply front.
Commercial oil stockpiles are at their lowest since 2014, the IEA said.
Against that backdrop, the Organization of the Petroleum Exporting Countries, Russia and allies, together known as OPEC+, are due to meet on Wednesday, where they are expected to stick to plans to add 400,000 barrels per day of supply each month.
Underscoring tightness in the market, the latest data from the American Petroleum Institute industry group showed US crude inventories fell by 6.1 million barrels for the week ended February 25th.
The US Energy Information Administration is due to release weekly data on Wednesday, with analysts polled by Reuters expecting a crude inventory build of 2.7 million barrels. – Reuters