Oil soars as emergency crude release fails to ease supply fears
Julia Fanzeres 03/01/2022
(Bloomberg) – Oil surged as the move by the United States and other major economies to release emergency stocks did not allay fears of a major supply shortfall as sanctions ease. are stepping up against Russia.
West Texas Intermediate West Texas Intermediate crude rose 9.4% to $104.72 a barrel on Tuesday. The International Energy Agency has agreed to deploy 60 million barrels from stockpiles around the world, which is less than six days of Russian production. Financial sanctions against Russia continue to mount, raising the specter of a major global supply disruption.
“We are very afraid of losing supply from Russia,” said Bart Melek, head of commodity strategy at TD Securities. “The release of strategic reserves does not seem sufficient.”
The rally was further bolstered by options positioning. As prices moved above key levels like $100, where traders had built up bullish positions, banks that sold those contracts found themselves exposed. As banks are forced to buy futures to hedge their risk, the rally snowballs.
The invasion of Ukraine disrupted commodity markets, from oil to natural gas and wheat, putting inflationary pressure on governments. While the United States and Europe have so far refrained from imposing sanctions directly on Russian commodities, trade in these commodities is stalling as banks withdraw funding and the costs of shipping increase. Russia is the world’s third largest 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., raised their oil price forecasts, anticipating possible supply disruptions. Consultancy OilX said the likelihood of a major disruption to Russian crude and seaborne products is increasing, which could push prices above $150 a barrel.
The turmoil caused by the invasion will bring a fresh challenge to balancing a tightening market for OPEC+, which meets on Wednesday to discuss output policy. Delegates said the cartel is likely to stick to its plan of gradually increasing supply. President Vladimir Putin spoke with the UAE leader ahead of the meeting, while Saudi Arabia said it supported efforts to reduce escalation in Ukraine.
The market structure shows how tight the supply has been. Brent remains deep behind, where fast barrels command higher prices than later cargoes. The benchmark’s rapid spread was $3.93 a barrel in backwardation after surging on Tuesday.
Oil Curve Turns Bullish In “Super Lag” On Russian Risk
Traders are paying the biggest premium in more than two years to bet on higher oil prices as Russia’s invasion of Ukraine prolongs crude’s relentless rally. The Brent call option premium hit a more than two-year high, underscoring the extent of the bullish sentiment in the oil market.
Coordinated release talks are currently focused on tapping 30 million barrels from the United States’ strategic petroleum reserve and an equivalent amount from a group of other countries, the sources said. No decision has been made and discussions could continue for several more days, they said. Before the pandemic, global oil consumption was around 100 million barrels per day.
The invasion of Ukraine is also prompting oil companies to end their operations in Russia. Shell Plc and BP Plc announced their withdrawal, while TotalEnergies SE said on Tuesday it would no longer invest in new projects in the country.