Oil Blows Past $100 as Ukraine Invasion Escalates

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Ukraine Russia Tensions
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Oil futures rocketed higher Tuesday as the market digested the impacts of Russia’s invasion of Ukraine and resulting sanctions.  

Several companies have canceled loadings of Russian crude, some countries such as Canada have outright banned purchase of Russian oil, and a series of sanctions is disrupting flows of Russian energy to the global market. Some tankers are refusing to load Russian cargoes, and banks leery of running afoul of sanctions are not financing transactions involving Russian commodities.

The net effect is a disruption to Russian supplies of oil to the world, regardless of carve-outs for energy in the sanctions.  

“No buyers plus no credit plus no tankers equals no Russian oil,” said Andy Lipow of Houston’s Lipow Oil Associates. “Avoiding Russian crude oil puts upward price pressure on the alternatives.”

The announcement of a coordinated release of strategic crude stocks from members of the IEA, including the US, did nothing to cool prices — in fact, crude and products tacked on further gains following the news.  

The coordinated release amounts to 60 million barrels. Jay Hatfield, portfolio manager at AMZA, said the release was “immaterial to the global market … it’s just not enough.”  

In London, Brent crude for May delivery jumped $7 on Tuesday to settle at $104.97 per barrel.  

In New York, April West Texas Intermediate (WTI) on Nymex gained $7.69 to end the session at $103.41/bbl.  

April Nymex gasoline and diesel futures surged as well. Gasoline settled 15.62¢ higher at $3.0887 per gallon, while the diesel contract soared 21.98¢ to close at $3.1511/gal.  

April Nymex gasoline and diesel futures were both rocketing higher as well, with the former tacking on a whopping 15¢ and the latter over 20¢ per gallon.

No Relief

The forward curve for Brent, WTI, gasoline and diesel remained in steep backwardation, with front-month contracts expanding their premium to later-dated volumes. And the physical market continues to signal that there's more price pain to come — dated Brent breached $111/bbl Tuesday afternoon.  

Some market watchers say any form of price relief is unlikely in the near term. One potential source of more supply would be Opec, but it is currently aligned with Russia in terms of coordinating supply and thus may not open its taps.

“The group is likely to stick to their existing policy at Wednesday’s meeting,” said Fawad Razaqzada of ThinkMarkets. “Opec-plus will likely suggest that Russia’s invasion of Ukraine has not affected [their] deal.”

That means the fundamental backdrop, already supportive to high prices prior to Russia’s invasion, remains skewed to the upside.

Technical indicators are also signaling that prices could climb even higher.

“To jeopardize the structural integrity of the up trend we would need to see the bears send Brent crashing beneath the Feb. 18 lows,” said Brian LaRose of Icap. “The door is wide open for Brent to visit higher levels should the bears fail to make that happen.”

Brent had already breached two key resistance levels by mid-morning.

Possible Anchors

Other indicators are less bullish, however; surging inflation, sagging equities, the typical economic havoc of war, and potential demand destruction due to high prices could all weigh on petroleum going forward.

“If this trajectory in oil prices continues, economic growth prospects will take a big hit and that could lead to a significant deterioration with the medium-term crude demand outlook,” said Edward Moya of Oanda.  

Ultimately, said Tamas Varga of oil brokerage PVM, “the only certainty is price volatility until the currently blurred and confusing picture becomes any clearer.”

Oil Futures and Derivatives, Oil Prices, Oil Supply, Supply & Demand , Ukraine Crisis
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