Oil rises as Russia-Ukraine escalation spurs supply concerns

Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. Picture taken March 24, 2016. REUTERS/Nick Oxford

By Reuters

Oil prices jumped more than $2 on Tuesday on supply disruption worries as tensions between Russia and Ukraine escalated after Moscow ordered troops into two breakaway regions in eastern Ukraine.

Moscow’s move drew international condemnation and U.S. officials said Washington in coordination with allies is planning to announce new sanctions on Russia, the world’s second largest oil producer.

U.S. President Joe Biden has issued an executive order to halt U.S. business activity in the breakaway regions and ban the import of all goods from those areas.

But a Biden administration official said Russia’s military action did not as yet constitute an invasion that would trigger a broader sanctions package.

Brent crude futures rose $2.14, or 2.24%, to $97.53 a barrel at 0710 GMT, adding to a 2% gain on Monday. Earlier on Tuesday it hit $97.66, its highest since September 2014.

U.S. West Texas Intermediate (WTI) crude futures jumped $3.60, or 3.95%, to $94.67 a barrel versus Friday’s settlement. The U.S. market was closed on Monday for a public holiday.

Commonwealth Bank analyst Vivek Dhar said it was unlikely U.S. and European governments would impose oil or gas sanctions on Russia if it invaded Ukraine further, as that would inflict pain on themselves.

However, Russia itself could hold back oil and gas supplies if it sought to retaliate against any other sanctions imposed by the West, Dhar added. Ukrainian President Volodymyr Zelenskiy accused Russia of wrecking peace talks and ruled out territorial concessions.

Analysts say the big question hanging over the oil market is whether Russian energy exports would actually be disrupted if Moscow went ahead with a fullscale invasion of Ukraine and western governments imposed sanctions against Russian financial institutions.

“Having formed a base at $89 per barrel, WTI crude looks poised to surge further on the higher trajectory, owing to heightened geopolitical risks,” Sugandha Sachdeva, vice president of commodity and currency research at Religare Broking said.

We still have a crucial hurdle in place at $95 per barrel and a break past this level will pave the way for crude prices to traverse higher towards $105 per barrel in the coming days, she added.