Oil Prices Maintain Upward Momentum Over Mounting Ukraine Tensions

A well head and a drilling rig in the Yarakta Oil Field, owned by Irkutsk Oil Company (INK), in Irkutsk Region, Russia, on March 11, 2019. (Vasily Fedosenko/Reuters)

Oil prices broke through a seven-year high level amidst tensions that Moscow could invade Ukraine and lead to the triggering of sanctions against Russia, the world’s third-largest producer of oil.

As of UTC 12:18, April Brent Oil futures were trading at around the $94 per barrel level. The last time oil hit those levels was in September 2014. Prices had dropped below $20 per barrel in April 2020, after which it multiplied over 3.5 times in less than two years. Since December 2021, the price of oil has been on a continuous upsurge.

“If ... troop movement happens, Brent crude won’t have any trouble rallying above the $100 level. Oil prices will remain extremely volatile and sensitive to incremental updates regarding the Ukraine situation,” OANDA analyst Edward Moya said in a note, according to Reuters.

Russia’s oil exports stand at 5 million barrels per day, roughly 12 percent of global trade. The country exports 2.5 million barrels of petroleum products a day, making up 10 percent of world trade.

The bulk of Russian oil exports is accounted for by two regions—China at 30 percent and Europe at 60 percent. Russia accounts for 25 percent of global trade in gas. Out of the 23 billion cubic feet of gas it exports every day, 85 percent flows into Europe.

As such, any sanction placed on Russia’s energy exports, in case of a potential invasion of Ukraine, will have the greatest impact in Europe. The move will push up oil and gas prices across the world, causing the price of other commodities to rise correspondingly.

Due to such a scenario, many experts do not think any major sanction on Moscow’s oil exports is a possibility, especially since oil prices are already at high levels.

The Russian government’s actions against Ukraine might also be based on this expectation. At the same time, Russia relies greatly on its oil revenues and is unlikely to act in a manner that would threaten its supply.

Refusal by the Organization of Petroleum Exporting Countries (OPEC) to boost its monthly output is also contributing to the oil price surge. The organization had committed to raising monthly output by 400,000 barrels per day until March.

However, the International Energy Agency (IEA) recently pointed out in a report that there was a 900,000 barrels per day difference in OPEC’s production commitment and its actual target for the month of January.

Worries about inflation have worsened due to the rising oil prices. “A continued rapid rise can raise risks of recession-like conditions in some countries, especially if fiscal policy is also tightening notably,” Priyanka Kishore of Oxford Economics said to Bloomberg. “Hopefully, this is not the straw that breaks the camel’s back.”

The institution estimates that 0.2 percentage point of world growth is compromised every time oil price increases by $10 per barrel.