By Barani Krishnan
Investing.com -- The much-awaited triple-digit pricing for crude is finally here — seven years, five months and 15 days later, to be precise.
The last time Brent traded at or above $100 a barrel, was on Sept. 9, 2014.
In Thursday’s session, the global benchmark for oil rose to as high as $102.23 after Vladimir Putin finally gave up his pretense of dancing around Ukraine and directed the full force of Russia’s invasive power at his neighbor — fulfilling the threat the White House and the rest of the Western world had warned of for months.
“If you had to write a worst case scenario about the global oil market … this is it,” said Phil Flynn, energy analyst at Chicago’s Price Futures Group. “This is a complete and total disaster right now. Vladimir Putin basically is controlling Europe right now with oil and gas supplies. And we can't do anything to stop that.”
Natural gas futures on New York’s Henry Hub rose as much as 6% to a session high of $4.94 per thermal unit on news that Putin had ordered a “special” military action aimed at the “demilitarization” and “denazification” of Ukraine.
Crude and gas prices could rise further based on new sanctions that the White House and its European allies could impose on Russia — and potential retaliation from Moscow, which could curtail its own energy exports to the West as payback for the financial hit it will be taking.
“With oil prices well above $100 - up around 7% on the day - and gas prices surging once more, the question becomes just how far they will go,” said Craig Erlam, analyst at online trading platform OANDA.
“There's enormous uncertainty around how bad the situation will become in Ukraine and what impact that will have on supplies of oil and gas. The knee-jerk reaction has been strong and we could see prices settle if no further major escalations occur. Unfortunately, that's a massive "if" given how today has progressed.”
Russia produces about 10.5 million barrels of crude per day, or roughly 11% of world supply, according to U.S. Energy Information Administration.
Both the United States and Germany have already acted on the Nord Stream 2 gas pipeline — a pet project of Putin's.
But Berlin has withheld a decision on the more important Nord Stream 1 and Yamal gas pipelines that Russia still has running into Europe. This is the network that Europe will likely want to preserve to literally keep the lights — and heat — on across the bloc. Roughly a third of the gas burned in Europe comes via this source.
Going forth, Europe would likely have to rely on imports from the U.S. liquefied market amid declining exports from Africa and Europe’s limited possibilities to raise its own gas production.
“Further out in 2022 and into 2023, we see a risk that European balances could experience a deficit, leaving the region reliant on LNG, which would impact global flows,” said Sindre Knutsson, head of Gas Markets Research at Rystad Energy.
“It means Europe will have to compete with global buyers for additional LNG cargoes, which will drive up prices significantly.”
U.S. LNG exports rose by more than 3 billion cubic feet a day (bcf/d) in 2021 versus 2020 levels to average 9.8 bcf/d in 2021.
All things being equal, LNG exports growth is set to continue this year and next, reaching 11.5 bcf/d on the average for 2022 and 12.1 bcf/d in 2023, according to EIA projections.
Pricing wise, LNG went from record lows under $2 per unit in 2020 to record highs of $56 in October 2021. Benchmark prices currently stand at about $25 per unit.