Oil Futures Rally on Russia-Ukraine Standoff, WTI Tops $95

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the first trading day of the week with sharp gains. The market was supercharged by media reports citing U.S. and European officials that a Russian attack on Ukraine was imminent, possibly beginning as early as Tuesday, adding to concerns over potential supply disruption in an already tight global oil market.

A series of contradictory headlines flooded media airways on Monday, fueling uncertainty over whether there remains a diplomatic path in resolving Russia's ongoing standoff with Ukraine and Western powers. The day began on a hopeful note after Russian Foreign Minister Sergei Lavrov urged President Vladimir Putin to allow more time for diplomacy, signaling that there would be no imminent military strike on Ukraine and that they were prepared to continue diplomatic dialogue with the West. Sentiment, however, quickly soured after U.S. Secretary Anthony Blinken said the United States is in the process "to temporary relocate Embassy operations in Ukraine from our Embassy in Kyiv to Lviv due to the dramatic acceleration in the buildup of Russian forces."

Lviv is close to Ukraine's border with Poland, where thousands of American troops are currently being deployed. For its part, Ukrainian leadership rebuffed claims of a full-scale invasion, calling for calm and continued peace talks. This comes at a time when more than a dozen countries have urged their citizens to leave Ukraine amid warnings of an imminent Russian invasion.

After back-and-forth trading, international benchmark Brent crude for April delivery spiked more than $2 per barrel (bbl) to a $96.48-per-bbl new 7 1/2-year high, up from a $93.44 session low. U.S. crude benchmark West Texas Intermediate contract settled above $95, 2.5% higher on the session. NYMEX March RBOB futures jumped more than 4 cents for a $2.7794 per gallon settlement, and the front-month ULSD contract rallied to $2.9618 per gallon, up more than 5 cents on the session.

Dow Jones Industrials tumbled 400 points at one point during the session before paring the decline to end down a little more than 170 points, with the broader S&P 500 ending with a modest 0.4% decline after having fallen 1.1% during the session. U.S. dollar strengthened 0.3% to finish a volatile session at 96.356, as investors rush into safe-haven assets like the U.S. currency and Treasury bonds.

In addition to the potential disruption in European gas transit, investors fear a prolonged war between Russia and Ukraine could damage the global economy. Russia remains one of the world's top 10 economies and leading energy exporters, and a war could impact global supplies of aluminum, wheat, and crude oil. That could send commodity prices surging at a time when much of the world is already coping with sky-high inflation.

Speaking at an oil and gas exhibition conference in Cairo, Egypt's Petroleum Minister Tarek El Molla said, "For me, being professional, I can see oil going above $100 per bbl in the near future, but I don't want it to happen." Cyprus Energy Minister Natasa Pilides agreed it was "a very scary concept" to imagine oil prices surpassing $100 bbl. "It is actually quite tangible," she added.

Heightened geopolitical tensions come at a time when global oil markets are fretting over consistent underproduction from OPEC+ nations as well as lower investment flows into oil projects outside the bloc. International Energy Agency estimates chronic OPEC+ underperformance against output targets has taken 800,000 bbl each day off the market since the start of 2022. In January, the gap between OPEC+ actual output and its target levels swelled to 900,000 barrels per day in January.

As a result, industry stocks held by countries that are part of the Organization for Economic Cooperation Development plunged by a hefty 60 million bbl in December to now stand at their lowest level in seven years. Over the past 12 months, industry stocks have declined by 355 million bbl despite the release of more than 50 million bbl of oil from government reserves over the same period.

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

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

Liubov Georges