DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange spiked more than 2% early Wednesday in reaction to Russian President Vladimir Putin's announcement to partially mobilize Russian military forces for deployment to Ukraine and threatening the use of Russia's nuclear arsenal in a major escalation in the seven-month conflict.

Oil spiked, the U.S. dollar surged, nearing a fresh 20-year high, and the euro plummeted after Putin raised stakes in his unprovoked conflict in Ukraine, calling on 300,000 reserve soldiers and threatening to use "all instruments at the disposal" to defend Russia's territorial integrity. The new phase in the conflict follows an earlier announcement from the leaders of self-proclaimed republics of Donbass, Lugansk, Kherson, and Zaporizhiya to hold referendums on joining Russia as early as Friday, Sept. 23.

The plan closely mirrors the annexation of the Crimea that was quickly approved by the Russian government in 2014. However, referendums in eastern Ukraine could be used by Russia to claim that Ukrainian attacks to liberate its own territory amount to attacks on Russia itself, a troubling development.

Separately, the American Petroleum Institute reported late Tuesday commercial crude oil inventories increased by a smaller-than-expected margin during the week ended Sept. 16, while refined fuels stocks spiked amid signs of accelerated demand destruction.

Domestic crude stocks increased 1.035 million barrels (bbl) in the reviewed week said API, compared with estimates for a 2.2-million-bbl draw. Stocks at the Cushing, Oklahoma, tank farm, the NYMEX delivery point for West Texas Intermediate futures, rose 510,000 bbl. API data further showed gasoline supply increased 3.22 million bbl in the week profiled, missing estimates for a 500,000 bbl decline, while distillate inventories rose 1.538 million bbl, more than three times calls for a 500,000-bbl-increase.

In financial markets, U.S. equity futures rose slightly ahead of the Federal Open Market Committee's announcement on interest rates scheduled for 2 p.m. EDT at the conclusion of their two-day meeting. Central bank officials are expected to approve a third consecutive increase of 0.75% in the federal funds rate, while signaling interest rates will go higher and stay there longer to bring inflation under control.

A few analysts have suggested the August inflation report showing relentless rise in core consumer prices could trigger a debate over a larger rate move. But others think surprising the public with a larger rate hike could fuel questions over growing risks that the central bank would tip the economy into recession.

Wednesday morning, investors in interest-rate futures markets saw an 82% probability of a 0.75% rate rise to be announced Wednesday afternoon and an 18% probability of a full-point increase, according to CME Group.

In Europe, money markets are rapidly dialing up calls for the Bank of England to deliver two outsized rate increases by the end of the year, with traders placing around a 60% chance of a 0.75% increase on Thursday. That would be the bank's largest increase since 1989, when it jacked up borrowing costs.

Near 7:45 a.m. EDT, WTI futures for November delivery advanced above $86 bbl, up $2 in overnight trading, while the international crude benchmark Brent contract for November on ICE rallied to $92.66 bbl. NYMEX ULSD October futures gained 1.82cts to $3.904 gallon, and the front-month RBOB contract spiked 5cts to $2.4978 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com