Oil surged as a decision by the U.S. and other major economies to release emergency stockpiles failed to ease concerns of a major shortfall in supplies as sanctions mount on Russia.
West Texas Intermediate futures in New York rose 8% to settle above $103 a barrel on Tuesday. The International Energy Agency agreed to deploy 60 million barrels from stockpiles around the world, which amounts to less than six days of Russian output. Financial sanctions against Russia continue to mount, raising the specter of a major global supply disruption.
“We are quite afraid that we are going to lose supply from Russia,” said Bart Melek, head of commodity strategy at TD Securities. “The release from strategic reserves does not seem to be enough.”
The rally was further strengthened by options positioning. As prices blew past key levels like $100, where traders had amassed bullish positions, banks that sold those contracts found themselves exposed. As banks are forced to buy futures to cover their risk, the rally snowballs.
The invasion of Ukraine has upended commodity markets from oil to natural gas and wheat, piling inflationary pressure on governments. While the U.S. and Europe have so far stopped short of imposing sanctions directly on Russian commodities, the trade in those raw materials is seizing up as banks pull financing and shipping costs surge. Russia is the world’s third-biggest oil producer and, along with Saudi Arabia, an influential member of the OPEC+ alliance.
Wall Street banks including Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. have boosted their oil price forecasts, anticipating possible supply disruptions. Consultant OilX said the probability of heavy disruption of seaborne Russian crude and products is growing, which could push prices above $150 a barrel.
The turmoil sparked by the invasion will bring a new challenge in balancing a tightening market for OPEC+, which meets Wednesday to discuss output policy. Delegates said the cartel will probably stick to its plan of only gradually increasing supply. President Vladimir Putin spoke to the leader of the U.A.E. ahead of the meeting, while Saudi Arabia said it supports efforts to reduce escalation in Ukraine.
West Texas Intermediate for April delivery rose $7.69 to settle at $103.41 a barrel in New York
Brent for May settlement gained $7 to settle at $104.97 a barrel
Indications of just how tight supply has been is showing in the market’s structure. Brent remains deep in backwardation, where prompt barrels command higher prices than later-dated cargoes. The benchmark’s prompt timespread was $3.93 a barrel in backwardation after surging on Tuesday.