Oil prices jumped on Monday on escalating sanctions against Russia over its invasion of Ukraine, which in turn led President Vladimir Putin to put his country’s nuclear deterrent on high alert.
Brent jumped back above $100 a barrel, initially surging more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world’s second-largest producer could be disrupted. Russia accounts for about 10% of global oil supply.
U.S. West Texas Intermediate (WTI) crude futures were up $2.84, or 3.10%, at $94.92 a barrel, after hitting a high of $99.10 early in the day. WTI climbed to as much as $100.54 last week.
Brent crude futures was slightly down 95 cents or 0.93%, at $97.46, after hitting a high of $105.07 a barrel in early trade. Last week the benchmark hit a more than seven-year high of $105.79 after Russia’s invasion of Ukraine began.The April Brent contract expires on Monday.
“Moves by the U.S. and Europe to remove certain Russian banks from the SWIFT system have raised fears of a disruption to supply of some sort in the near term,” said ANZ commodity strategist Daniel Hynes.
“The risk to supply is the greatest we’ve seen for some time and it comes in a tight market,” he said.
Putin raised the stakes on Sunday, ordering Russia’s “deterrence forces” – which wield nuclear weapons – onto high alert, citing aggressive statements by NATO leaders and the range of economic sanctions imposed on Russia by the West. Russia calls its actions in Ukraine a “special operation.”
“President Putin’s decision to put Russian nuclear forces on high alert is a clear and worrying escalation that can only be supportive for oil prices,” said Stephen Brennock of oil broker PVM.
Escalating war came days ahead of a March 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC), Russia and allies, together called OPEC+. The group is expected to stick to plans to add 400,000 barrels per day (bpd) of supply in April.
Ahead of the meeting, OPEC+ revised down its forecast for the oil market surplus for 2022 by about 200,000 bpd to 1.1 million bpd, according to a technical committee report reviewed by Reuters on Sunday.
Further underscoring how tight the market is, the data also showed stocks in the developed world falling to 62 million barrels below the 2015 to 2019 average by the end of the year.
A separate report showed OPEC+ in January produced 972,000 bpd less than their agreed targets.
“The market being so tight with OPEC producers really struggling to raise output as well, means any issue with Russian supplies would be felt pretty significantly across the market,” ANZ’s Hynes said.