Oil prices have surged as the crisis between Russia and Ukraine escalate, with Moscow sending forces into two breakaway regions of eastern Ukraine. Russian President Vladimir Putin stepped up a notch by saying he would recognize the independence of Donetsk and Luhansk.
This prompted the US crude to surge 3.22% to $94 a barrel and Brent jumped up 1.5% per barrel to $96.82. Russia is the second-largest exporter of crude oil after Saudi Arabia ans is also the world’s top producer of natural gas. Analysts say crude prices recently crossed $90 per barrel. This shows an increase of more than 20% this year and a rally of more than 80% since the beginning of 2021.
Andy Lipow, the president of Lipow Oil Associates, sees oil further spiking to $110 per barrel if the crisis worsens. “Should we actually have Russian oil supplies cut off to Europe, which is three million barrels a day, we could see oil prices rise another $10 to $15 a barrel, putting Brent at about $110 a barrel,” he said. “The market will rally on an invasion of Russian troops into Ukraine proper, and then it’s going to wait to see where the resupply comes from.”
Lipow predicts that markets would turn to Saudi Arabia, UAE and Kuwait to utilize some spare capacity, 3.5 million to 4 million barrels a day. Meanwhile, Moody’s Analytics, estimated geopolitical tensions have added about $10 to $15 per barrel to oil prices. Katrina Ell, a senior APAC economist at Moody’s Analytics, said if tensions escalate causing various supply disruptions to Russia’s oil and gas supplies, it will continue to add upward pressure to oil prices. This will have an impact on Asia’s largest economies in regards to production from a consumption perspective.
Sue Trinh, an expert with the Manulife Investment Management, highlighted that the border tensions may have substantial implications. She noted that sanctions Russia to supply less crude or natural gas would have important impact on the global economy.
Song Seng Wun, an economist at CIMB Private Banking, believes a possible war is at the forefront of investors’ minds. He pointed out that the markets were a deep sea of red. With the global economy still recovering from the impact of the COVID-19 pandemic, equity investors are jittery about developments. Japan’s Nikkei 225 index slipped over 2%; the Shanghai Composite was 1.4% lower by mid-day; Futures for the S&P 500 retreated 1.6%; and the Dow Jones index fell 1.4%, while Nasdaq 100 futures gave up 2.2%.