Oil Soars as More Sanctions on Russia Spur Energy Crisis Fears

Source: By Alex Longley, Bloomberg • Posted: Monday, February 28, 2022

Some Russian banks cut from SWIFT; BP to dump Rosneft shares WTI crude tops $95; expiring Brent futures trade at $101

Oil surged as energy and commodity markets were thrown into disarray after more sanctions were unleashed to isolate Russia following its invasion of Ukraine.

Brent futures jumped as much as 7.3% on concern that oil supply — already stretched amid rebounding demand — may tighten further should Russian flows be disrupted. Some customers have paused purchases of the country’s flagship Urals grade, while Asian buyers are trying to secure more Middle Eastern crude.

Western nations agreed over the weekend to exclude some Russian lenders from the SWIFT bank messaging system, potentially throwing energy trade into turmoil. The Russian central bank’s foreign reserves were also targeted. In a signal about how far governments are willing to go to pressure the Kremlin, BP Plc moved to dump its holding in oil giant Rosneft PJSC by taking a financial hit of as much as $25 billion.

Futures surge after Russia slapped with more sanctions

“This is an enormous amount of oil that has the potential to be disrupted,” Jeff Currie, head of commodities research at Goldman Sachs Group Inc. said in a Bloomberg TV interview.

Russia’s invasion of Ukraine has roiled markets from energy to metals and grains, heaping more inflationary pressure on a global economy already grappling with soaring costs. At least two of China’s largest state-owned banks are restricting financing for purchases of Russian commodities, as are Societe Generale SA and Credit Suisse Group AG.

Against this volatile and fast-moving backdrop, OPEC+ faces a trickier task than usual when it meets on Wednesday to discuss supply policy for April. Despite the invasion, the cartel will probably stick to its plan of gradually increasing oil production, according to delegates. The group will also have to take into account the halt of some Iraqi output.

  • Brent for April settlement, which expires Monday, rose 3.2% to $101 a barrel at 9:05 a.m. New York time
    • The more-active May contract was 4.2% higher
  • West Texas Intermediate for April rose 4.2% to $95.40 a barrel

Demand destruction is the only thing that can stop oil shooting higher after additional curbs were unleashed on Russia, according to Goldman. The bank raised its one-month forecast for Brent to $115 a barrel from $95, with significant chance of pushing higher if there’s further escalation of tensions or longer disruption.

Russia pumped 11.3 million barrels of oil a day in January, according to data from the International Energy Agency. The IEA pledged last week to help ensure global energy security, while India said it would support initiatives to release emergency oil reserves to help calm prices.

— With assistance by Dan Murtaugh, Sharon Cho, and Serene Cheong