Oil Soars To Decade High Under Supply Concerns
The Russia-Ukraine crisis and ramping up of Western sanctions continue to stoke major market volatility. Wednesday opened with a fresh spike as Brent crude topped $111 per barrel, the highest price since January 2013.
Over the past months, supply fears have dominated oil markets and kept prices pressed around the $100 mark. Indeed, the current conflict has only added further pressure due to Russia’s influence in energies.
Although Western sanctions have stopped short of embargoes on Russian energy production, the sector remains exposed to the general economic disruption. Most notably, the decision to exclude Russia from SWIFT will have dampened foreign buyers’ enthusiasm for Russian energy products.
In an effort to tackle the supply problem, OPEC (the Organization of the Petroleum Exporting Countries) and oil-producing allies are preparing to discuss increasing output for the markets. Supply has been restricted since April 2020, when prices fell to record lows during the Saudi-Russian price war. Additionally, the International Energy Agency has pledged to release 60 million barrels of oil reserves, and the US 30 million.
Nevertheless, OPEC includes Russia as a co-chair, so traders remain skeptical towards the chance of significant relief action. Goldman Sachs advised clients that “demand destruction…is now likely the only sufficient rebalancing mechanism”. In the meantime, Oanda analyst Ed Moya states that “brent crude could surge to the $120 level” if traders believe energy sanctions are on the table.