Benchmark global oil prices surged above $110 a barrel, hitting a multiyear high, as concern mounted that Russia’s growing economic isolation since its invasion of Ukraine would disrupt global energy supplies.
The latest run-up came even after members of the International Energy Agency agreed Tuesday to release supplies from their oil reserves, and despite efforts by Western governments to exclude oil and gas from their sanctions on Russia.
“The sheer magnitude of the supply at risk of disruption means even a decent chunk of reserves being released may not make a dent,” said Daniel Hynes, senior commodity strategist at ANZ in Sydney.
Refiners have balked at buying Russian oil, while banks are refusing to finance shipments of Russian commodities, according to oil executives, bankers and traders. Foreign energy companies are also pulling back from the country: Shell PLC plans to exit its joint ventures with Russian energy giant Gazprom, and BP PLC intends to divest itself of its nearly 20% stake in Russian state-controlled oil producer Rosneft.
By midafternoon on Wednesday Hong Kong time, front-month Brent crude-oil futures stood 5.6% higher at $110.87 a barrel, FactSet data showed. The rise took Brent’s gains this year to nearly 43%, and put the international oil benchmark on course to settle at its highest level since July 2014.
The U.S. equivalent, West Texas Intermediate, similarly jumped. Most-actively traded WTI contracts rose about 5.8% to $109.38.
Shares in oil and gas companies gained in Asian trading hours, with Australia’s Woodside Petroleum Ltd. rising 6.1% and Japan’s Inpex Corp. advancing 7.7%.
Russia is the third-largest oil producer behind the U.S. and Saudi Arabia, producing 11.3 million barrels per day in January, according to the IEA. About 60% of its oil exports go to European countries that belong to the Organization for Economic Cooperation and Development, while another 20% is exported to China, the energy agency says.
Rising commodity prices could force the U.S. Federal Reserve, which is already confronting inflation at a 40-year high, to accelerate interest-rate increases this summer, in turn potentially raising the risk of a recession next year.
One rule of thumb holds that an oil-price rise of $10 a barrel increases overall U.S. inflation by 0.4 to 0.5 percentage point. Russia is a top supplier of oil and natural gas, and a major player in some other commodities, including a number of metals.
Elsewhere in global markets, U.S. stock futures gained modestly, suggesting shares could recoup some of the previous day’s losses in Wednesday’s trading session. Asian stock indexes were mostly lower.
Source: The Wall Street Journal
BDST: 1535 HRS, MAR 02, 2022