(Bloomberg) -- Brent oil surged above $90 for the first time in seven years before paring as the market fretted over Russia-Ukraine tensions.
Futures in New York closed 2% higher, with the global benchmark touching $90 a barrel earlier in the session on Wednesday. Concerns are mounting over a possible Russian incursion into Ukraine, with U.S. President Joe Biden saying he’d consider sanctioning Vladimir Putin if the Russian leader orders an invasion. A potential conflict carries large risks for financial markets -- especially energy commodities such as natural gas and oil.
Inventories at the largest U.S. oil hub fell 1.8 million barrels for the third week in a row while total domestic stockpiles rose modestly. The oil market’s structure has surged in recent days, signaling tight supply.
“How the sanctions would impact Russian oil production getting into the market is the concern,” said Rob Thummel, Tortoise portfolio manager. “In a global oil market that’s having a hard time with supply keeping up with the demand, less Russian oil supply would temporarily push up prices.”
Crude is having a volatile week, slumping Monday then rebounding Tuesday. Prices are at a seven-year high with demand continuing to recover from the pandemic as mobility picks up. A string of Wall Street banks including Goldman Sachs Group Inc (NYSE:GS). have forecast oil will hit $100 a barrel this year as the global market tightens. Adding to tighter market constraints, OPEC+ is expected to stick to their plan and ratify another modest production increase next week.
In the EIA weekly report, Cushing crude stockpiles fell for the third week in a row last week to 31.7 million barrels, getting close to the 30--million-barrel level that traders watch as a warning signal for low inventories. Draws in the storage hub are a key reason why the WTI prompt spread is rallying to levels last seen in November.
“Anyone who has not participated in the ‘energy’ rally may start to really feel the need to get exposure,” which may nudge the market a leg higher, said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.
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