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Brent Rises to Highest Since 2014 Amid Geopolitical Tensions

Oil held above $85 a barrel after industry estimates showed a draw in U.S. stockpiles and investors tracked tensions over Ukraine.

Brent Rises to Highest Since 2014 Amid Geopolitical Tensions
A valve control wheel connected to crude oil pipework in an oilfield near Dyurtyuli, in the Republic of Bashkortostan, Russia. (Photographer: Andrey Rudakov/Bloomberg)

Brent oil surged above $90 for the first time in seven years before paring as the market fretted over Russia-Ukraine tensions.

Futures in New York closed 2% higher, with the global benchmark touching $90 a barrel earlier in the session on Wednesday. Concerns are mounting over a possible Russian incursion into Ukraine, with U.S. President Joe Biden saying he’d consider sanctioning Vladimir Putin if the Russian leader orders an invasion. A potential conflict carries large risks for financial markets -- especially energy commodities such as natural gas and oil.

Inventories at the largest U.S. oil hub fell 1.8 million barrels for the third week in a row while total domestic stockpiles rose modestly. The oil market’s structure has surged in recent days, signaling tight supply.

“How the sanctions would impact Russian oil production getting into the market is the concern,” said Rob Thummel, Tortoise portfolio manager. “In a global oil market that’s having a hard time with supply keeping up with the demand, less Russian oil supply would temporarily push up prices.”

Brent Rises to Highest Since 2014 Amid Geopolitical Tensions

Crude is having a volatile week, slumping Monday then rebounding Tuesday. Prices are at a seven-year high with demand continuing to recover from the pandemic as mobility picks up. A string of Wall Street banks including Goldman Sachs Group Inc. have forecast oil will hit $100 a barrel this year as the global market tightens. Adding to tighter market constraints, OPEC+ is expected to stick to their plan and ratify another modest production increase next week.

Prices
  • West Texas Intermediate for March delivery rose $1.75 to settle at $87.35 a barrel in New York
  • Brent for March settlement rose $1.76 to settle at $89.96 a barrel

In the EIA weekly report, Cushing crude stockpiles fell for the third week in a row last week to 31.7 million barrels, getting close to the 30--million-barrel level that traders watch as a warning signal for low inventories. Draws in the storage hub are a key reason why the WTI prompt spread is rallying to levels last seen in November.

“Anyone who has not participated in the ‘energy’ rally may start to really feel the need to get exposure,” which may nudge the market a leg higher, said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

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  • Gasoline futures are at the highest premium to crude for this time of year since 2013 as refiners struggle to build supply ahead of summer. The Nymex gasoline contract is trading at around $18.50 a barrel above crude, the biggest premium for this time of year since 2013.
  • Nigeria’s oil industry woes are starting to capture the attention of bond investors.The cost of insuring the nation’s dollar bonds against default jumped to the highest since October 2020 this week after Africa’s largest crude producer delayed plans to cut expensive gasoline subsidies by 18 months.
  • More Chinese are joining a great travel rush back to their home towns for the Lunar New Year holiday, aiding oil demand.

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