I jumped Oil prices in Asia At the open around 18%, before reversing and paring those gains following reports that the US was discussing a ban on Russian crude imports, caused shock waves in an already reeling market.
Brent quickly pared regarding half of those gains to trade near $130 a barrel, at a 13-year high, a level that continues to exacerbate fears of a major inflationary shock to the global economy. The Biden administration is considering whether to ban imports of Russian oil into the United States without the participation of allies in Europe, at least initially, according to two people familiar with the matter.
The statement comes following US Secretary of State Anthony Blinken said the Biden administration and its allies are discussing an embargo on Russian oil, as pressure mounts to respond more forcefully to the invasion of Ukraine by squeezing exports from the main Russian energy industry.
The United States has so far resisted pressure to impose restrictions on Russian crude imports due to concerns regarding the impact of higher prices on consumers.
Oil prices rose as the Russian embargo might fuel supply shortage fears.
Brent crude traded in a range of $16.34 a barrel on Monday, the widest ever for the London benchmark, as the market adjusted to the prospect of an extended absence of regarding 8% of global oil imports. This makes it the most volatile oil trading day since WTI plunged below zero in 2020.
Fears of global shock
“If the West shuts down most of Russia’s energy exports, it would be a huge shock to global markets,” said Ethan Harris, chief economist at Bank of America.
Harris estimated that the market’s loss of five million barrels of Russian oil might lead to a doubling of oil prices to $200 a barrel and lower economic growth globally.
JPMorgan Chase said Brent might end the year at $185 a barrel if Russian supply disruptions continue, while one hedge fund said $200 is a possible price.
Rising oil and other commodity prices shocked markets and sounded alarm bells for central banks. The Indian rupee was among the biggest losers in Asia on fears that the Reserve Bank of India will be forced to raise inflation expectations, but it has little room to tighten monetary policy.
Concern regarding buying, financing and shipping Russian oil
Mike Muller, head of Asia at Vitol Group, said: “We have a lot of twists and turns coming, and I think the world is already setting prices that reflect the fact that there will be an inability to absorb a large amount of Russian oil in the Western Hemisphere but so far it has not been priced everything”.
Brent crude for May rose 9.1% to $128.89 a barrel, following touching $139.13 earlier.
Brent crude futures rose 21% last week.
West Texas Intermediate for delivery in April rose 8.4% to $125.39 on the New York Mercantile Exchange following jumping 26% last week.
Brent’s volatility has overshadowed that of the 2008 global financial crisis and the slump in demand brought on by the coronavirus pandemic. Traders, shipping companies, insurance companies and banks were increasingly wary of buying or financing Russian oil purchases as financial sanctions were imposed.
Negotiations with Venezuela
There are efforts underway to try to increase the supply. Two senior US officials met with members of Venezuelan President Nicolas Maduro’s government in Caracas to discuss global oil supplies and the country’s relations with Russia, according to people familiar with the matter.
Meanwhile, Iran has made progress toward concluding a deal with world powers over its nuclear program that might pave the way for the lifting of sanctions on Tehran’s oil by the third quarter.
But in more worrying news regarding supplies, OPEC producer Libya said its oil production had fallen to less than 1 million barrels per day due to a domestic political crisis.
Muhammad Shatti, an oil expert, ruled out that Russian oil production would be compensated if Western sanctions included the Russian oil and gas sector, because the market suffers from a shortage of supplies.
Speaking to Al-Arabiya, he said that there are fears in the oil market with buyers’ reluctance to buy Russian oil, which may impede the loading of between one million and two million barrels per day of this oil.
He added that geopolitical concerns with the decline in excess production capacity and the decline in oil reserves in the world compared to the past five years indicate a weakness in supplies.