Oil prices hit their highest in more than seven years on Monday on fears that a possible Russian invasion could cut exports of one of the world’s biggest producers in the already tight market and trigger sanctions from western countries.
Brent crude futures were up $1.17, or 1.2%, to $95.61 a barrel as of 0506 GMT, after first hitting $96.16, the highest level since October 2014.
West Texas Intermediate (WTI) crude rose $1.41, or 1.5%, to $94.51 per barrel. Remained near the session high of $94.94, the highest since September 2014.
The United States said on Sunday that Russia could invade Ukraine at any time and create a surprise pretext for an attack. These statements shook the global financial markets.
Oil prices are highly volatile and will remain sensitive to incremental updates on the Ukrainian situation. In such an alarming situation, there will be no obstacle for Brent crude to rise above the $100 level.
While global leaders are rushing to defuse escalating tensions, there is no single tension in the fight to keep prices from rising.
Adding to geopolitical tensions is the fact that the Organization of the Petroleum Exporting Countries (OPEC) and its allies are struggling to increase production despite commitments to increase production by 400,000 barrels per day (bpd) by March.
The International Energy Agency said the gap between OPEC+ production and the target widened to 900,000 barrels in January. With Iraq’s largest deficit, seven members across the group failed to meet quota increases in the month.
Whilst economies bounce back from the coronavirus pandemic, reserve supply is limited and oil production growth is trying to cope with escalating demand.
Some analysts say a supercycle is in full swing, with oil prices on the way to hitting $125 a barrel as the reserve capacity risk premium is widened.
Investors are also watching the talks between the US and Iran to revive the 2015 nuclear deal. But a senior Iranian security official said on Monday that progress in talks has become more difficult.
US drillers have added the most oil rigs in a week since February 2018.