Oil breaches $100 as energy industry scrambles to assess fallout of Ukraine conflict

Russian President Vladimir Putin's military operation in Ukraine’s Donbas region drove oil prices to record highs on Thursday, with ICE Brent Futures for April 2022 delivery soaring to cross the US $102-mark per barrel for the first time since 2014.

Brent crude touched a high of $102.48 a barrel at 0547 GMT on Thursday, before easing to $102.06 a barrel, while West Texas Intermediate (WTI), the gauge that tracks US crude, rose 5.23 per cent to $96.92 a barrel on Thursday morning.

Threat to global energy supplies

Ukrainian foreign minister Dmytro Kuleba said in a tweet that Russia has launched a full-scale invasion of Ukraine and is targeting cities with weapons strikes. The conflict in Ukraine has raised the risk of disrupting global energy supplies and spur new sanctions against Russian energy companies. However, some analysts advocated a more temperate outlook in the short-term.

“Oil markets are understandably on edge due to Russia’s outsized market position and 2.7 million b/d of crude exports to Europe, but Platts Analytics still does not anticipate a notable supply curtailment from Western sanctions or Russia holding back large volumes,” S&P Global Platts Analytics said in a spotlight report.

Prices for Russia’s key crude grade Urals have increased significantly since October 2021, with S&P Global Platts assessing Urals at $90.72/b on February 23, up 19 percent from $75.99/b on October 1, 2021.

Monitoring the situation

The International Energy Agency has said it is monitoring with “growing concern” Russia's actions. The global energy watchdog said it was consulting with member countries and key partners on “appropriate measures to ensure energy security".

“While the specific impact on world oil markets is yet to be determined, IEA member countries stand ready to act collectively to ensure that global oil markets are adequately supplied,” the IEA said in a statement on Wednesday before the attacks begin.

According to the agency, total oil stocks in IEA member countries stood at close to 4.16 billion barrels at the end of last year, of which 1.5 billion barrels were held by governments as emergency reserves.

The escalation of tensions is also likely to lead to a further increase in soaring wholesale gas prices, according to Moody’s Investors Service. However, the agency said that a complete halt to gas from Russia – which is Europe’s largest gas supplier – is unlikely.

“Energy suppliers would be most at risk from higher gas and electricity prices, unless they are hedged or can quickly pass on higher procurement costs to consumers,” Knut Slatten, vice president and senior credit officer at Moody’s, said in a statement.