U.S. oil jumps to highest level since 2013, topping $109 a barrel, as Russia’s war with Ukraine raises supply concerns

Oil pipelines, pumping stations and power lines dot the landscape along California’s “Oil Highway” (Hwy 33) running along the northwest side of the San Joaquin Valley on April 24, 2020, near McKittrick, California.

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U.S. oil climbed to its highest level since 2013 during Tuesday’s overnight trading, with global benchmark Brent topping $110 a barrel as crude oil’s roaring rally continues. The move comes as OPEC and its oil production allies, including Russia, are gearing up for a meeting on Wednesday to discuss April’s output.

Futures for West Texas Intermediate crude oil, the benchmark for US oil, jumped more than 5% to trade at $109.23 a barrel, the highest level since at least September 2013. During regular trading, the contract rose 8.03% to $103.41 per barrel.

Global benchmark Brent rose 5.6% to $110.84 a barrel, the highest level since July 2014. During the session on Tuesday, the contract rose by 7.15% to $104.97 per barrel.

“There is no respite. This is a dramatic moment for the market, the world and supply,” said John Kilduff, partner at Again Capital. “Obviously, the world will have to confront Russia by cutting off its oil exports,” he added, noting that the market cannot afford to lose oil.

Both WTI and Brent surged above $100 last Thursday for the first time since Russia’s invasion of Ukraine in 2014, raising supply concerns in an already very tight market.

“Crude oil prices cannot stop rising as the very tight oil market is likely to face additional supply risk as the war unfolds in Ukraine,” said Ed Moya, senior market analyst at Oanda. “Brent oil could rise to $120 if the oil market starts to think that possible sanctions will be imposed on Russian energy.”

On Tuesday, member states of the International Energy Agency announced plans to release 60 million barrels of oil reserves to ease the upward trend in oil prices. As part of this, the US will release 30 million barrels.

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But this announcement did little to calm the markets.

“We don’t see this as a sufficient relief,” Goldman Sachs wrote in a note to clients following the announcement. “Destroying demand – through even higher prices – is now probably the only sufficient rebalancing mechanism, with supply elasticity no longer relevant in the face of such a potentially large and immediate supply shock,” the firm added.

Both WTI and Brent are currently up over 40% year-to-date as demand recovers and supply remains tight. Global producers are in control of production, and OPEC and its oil-producing allies are gradually returning barrels to the market after an unprecedented supply cut of nearly 10 million barrels a day in April 2020.

Recently, the group has been increasing production by 400,000 barrels a day every month.

“We think the producer group is likely to continue on course with the current easing schedule and not become embroiled in a deepening security crisis related to the group’s co-chair, Russia,” RBC wrote in a note to clients.

The firm noted that “there could be a change in strategy in the coming weeks” if there was an actual physical disruption to supply.

Russia is a key producer and exporter of oil and gas, especially to Europe. So far, the country’s energy complex has not been directly subjected to sanctions. However, the financial sanctions imposed on Russia are causing a ripple effect that makes some foreign buyers reluctant to buy energy in Russia.

— Patti Domm of CNBC provided the coverage.

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