Russia Response Could See Oil Burst Through $100

There’s every chance we could see Brent oil prices above $100 soon, depending on Russia’s response to economic sanctions.

That’s according to Walid Koudmani, the chief market analyst at financial brokerage XTB, who highlighted that Brent had been trading at six-year highs following the latest developments in the Russia – Ukraine conflict.

“The biggest moves we've seen from clients so far is buying into oil prices expecting the recent escalation to hit supply and push energy prices higher,” Koudmani said in a statement sent to Rigzone on Tuesday.

“The risk of the situation in Ukraine escalating had been digested by investors already for some time. So whilst the rise in energy prices is noted, the moves are far from dramatic,” Koudmani added in the statement.

“That being said, investors hate uncertainty and any large scale troop movement by Russia beyond Donetsk and Luhansk will likely trigger a larger flight to safe haven assets,” he went on to say.

Koudmani also outlined in the statement that inflation remains the longer term concern on the broader economy and noted that Europe can ill afford to see oil prices trading above $100 for a significant period of time.

“A long drawn out series of economic hostilities between the west and Russia will keep energy prices elevated and this will have deeper effects on the real economy given inflation is expected to hit above seven percent in the UK in the coming months,” Koudmani said.

“It's in this sense that the initial wave of sanctions on Russia as well as subsequent moves will be closely watched by investors,” he added.

In a separate report sent to Rigzone, XTB marked oil as one of the key markets that must be watched in relation to the Russia – Ukraine conflict. XTB highlighted in the report that Russia is the second largest exporter of oil and noted that the commodity is also some substitute for natural gas which has already been in tight supply in Europe.

At the time of writing, Brent crude oil was trading at $96.78 per barrel.

XTB is one of the largest stock exchange-listed FX & CFD brokers in the world, according to its website, which highlights that the business has offices in more than 13 countries including the UK, Poland, Germany, France and Chile.

Sanctions Go Far Beyond 2014

A White House statement on Tuesday revealed that the Biden administration was implementing the first tranche of sanctions on Russia “that go far beyond 2014”, in coordination with allies and partners in the European Union, United Kingdom, Canada, Japan, and Australia. The White House statement noted that Russia “will pay an even steeper price if it continues its aggression”.

“We still believe that Russia is poised to go much further in launching a massive military attack against Ukraine,” Biden said in a speech at the White House.

“I hope I’m wrong about that — hope we’re wrong about that. But Russia has only escalated its threat against the rest of Ukrainian territory, including major cities and including the capital city of Kyiv,” he added in the speech.

“Further Russian assault into Ukraine remains a severe threat in the days ahead. And if Russia proceeds, it is Russia, and Russia alone, that bears the responsibility,” Biden went on to say.

Biden also noted in the speech that the U.S. was closely monitoring energy supplies for any disruption. 

“We’re executing a plan in coordination with major oil-producing consumers and producers toward a collective investment to secure stability and global energy supplies,” he said.

“This will blunt gas prices. I want to limit the pain the American people are feeling at the gas pump. This is critical to me,” Biden added.

To contact the author, email andreas.exarheas@rigzone.com