Posted Feb 22 2022 at 13:00
An escalation of tensions and sharply rising oil prices. After Putin signed a decree recognizing pro-Russian-controlled pro-independence provinces in Ukraine and sending some troops and armor to those areas, European benchmark Brent rose nearly 4% to $99.5, unheard of since 2014. The WTI, American reference, followed the same trend to quote more than 95 dollars.
Europe and the United States will undoubtedly impose sanctions against Russia in response. “This increases the risk of seeing Russian oil and gas deliveries disrupted,” says Carsten Fritsch of Commerzbank. Moscow is the world’s second largest exporter of crude oil and supplies Europe with 40% of imported gas. Investors are closely following the discussions around the measures that Brussels and Washington will take.
More generally, the fundamentals also plead for a rise in prices. Oil consumption is gradually returning to pre-pandemic levels, but production is unable to keep up with the pace, particularly within OPEC, hence rising prices for several months.
“Robust demand combined with the inability of OPEC and its allies to meet their commitments to increase production has kept the market under pressure”, explain ING analysts. Members of OPEC also believe that it is not necessary to pump more black gold, even if prices are sinking towards 100 dollars.
The gas market also jumped on the announcement of the entry of Russian troops into Ukraine. The MWh delivered to the Netherlands rose 10% to almost 80 euros. Although prices are high, they remain below the record levels reached this winter. The MWh had for example reached 180 euros in December. After the Russian offensive, German Chancellor Olaf Scholz decided to suspend the certification of the NordStream 2 gas pipeline, thus delaying its commissioning.