Oil prices rose 5% on Tuesday as the United States banned Russian oil imports and Britain said it will phase them out by year-end, decisions that are expected to further disrupt the global energy market as Russia is the second-largest exporter of crude.
Oil prices have surged more than 30% since Russia invaded Ukraine, and the United States and other countries imposed a raft of sanctions. The sanctions had already upended Russian oil and gas exports even before the ban, as traders sought to avoid running afoul of future sanctions.
U.S. President Joe Biden announced a ban on Russian oil and other energy imports, while Britain said it will phase out the import of Russian oil and oil products by 2022.
Brent crude futures were up $5.51, or 4.5%, at $128.72 a barrel by 2:10 p.m. EST (1710 GMT). U.S. crude futures were up $5.38, or 4.5%, at $124.78.
Russia is the world’s second-biggest oil exporter, shipping 7 million to 8 million barrels per day of crude and fuel to global markets.
The United States imports very little oil from Russia, yet the ban is “one more source of supply loss,” said Matt Smith, lead oil analyst at Kpler.
“It’s just one more escalation in a series of events that have pushed crude and product prices higher,” he said.
The import bans could send global oil prices spiralling to $200 a barrel, analysts at Oslo-based consultancy Rystad Energy said. Before Washington’s ban was announced, Goldman Sachs had raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, saying the world economy could face the “largest energy supply shocks ever” because of Russia’s key role.
“How high can oil prices go? Pick a number, this is a market in disarray,” Mike Tran, an analyst at RBC Capital Markets, said in a note early on Tuesday.
Many buyers were already avoiding Russian oil. Shell PLC said it would stop all spot purchases of Russian crude after drawing criticism for a purchase made on March 4.
Some market watchers said oil’s rally was overdone, and crude briefly gave up most gains around an hour before settlement. Traders attributed the retreat to reports about Ukrainian President Volodymyr Zelensky no longer pressing for NATO membership.
Ukraine’s pursuit of a NATO membership has been a key point of contention in negotiations with Russia.
Dimming expectations for an imminent return of Iranian crude to global markets have added upward pressure on prices as talks have slowed down between Tehran and world powers.
Supply disruptions come as inventories continue to fall worldwide. Five analysts polled by Reuters estimated on average that U.S. crude stockpiles decreased by about 700,000 barrels in the week to March 4.
The poll was conducted before weekly inventory reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.
Media reports about the International Energy Agency’s readiness to release more oil from emergency stockpiles had no impact on the rally.
“Ultimately, the IEA is not announcing significant action,” said Craig Erlam, senior market analyst at OANDA. “In this market, words are not going to have an impact.” (Reuters)
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