Escalating tensions in Ukraine are rocking energy markets, as Russian President Vladimir Putin decided to send ‘peacekeeping forces’ to the two breakaway pro-Russian regions in the east of Ukraine, which he officially recognized on Monday. On Tuesday, the price of a barrel of Brent came close to the symbolic bar of 100 US dollars – a record for seven years for black gold.
For several days, oil prices have been on fire. After soaring to $99.50 during the day, the price of a barrel of Brent North Sea oil for April delivery later fell back to $96.38 on Tuesday, up 1.04 %. In New York, the barrel of West Texas Intermediate (WTI) for delivery in March reached 92.35 dollars (+1.41%).
Russia’s intentions
“Several factors are exerting upward pressure on prices, and the Ukrainian crisis is inevitably part of the equation,” explains Dominique Lapointe, Senior Economist at Laurentian Bank Securities. For a few months now, gold prices have been rising due to a shortage of supply.
The Organization of the Petroleum Exporting Countries, which had to drastically reduce its production at the start of the crisis, is struggling to meet global demand, which has picked up faster than expected, explains Mr. Lapointe.
Tensions in Ukraine, which escalated following the Russian President’s decisions announced earlier this week, exacerbated this price rise, with Russia being one of the largest producers in the world, with around 10% of world oil supply.
“To be honest, I’m quite surprised that we didn’t go over the $100 mark today,” admits the economist. “I think the market is still uncertain about Russia’s intentions and the possible sanctions applied against it. This is probably what keeps the price of a barrel a little below $100,” adds Mr. Lapointe. If tensions increase and Russian oil exports were to decrease, the price of a barrel of crude could exceed this symbolic bar, believes the expert. “However, it is difficult to predict how high this could go,” he admits.
Inevitably, a reduction in Russian oil exports and a rise in the price of black gold would affect pump prices. This would contribute to further exacerbate inflation, which is already very high in a good part of Western countries due to the pandemic.
Late Tuesday, the International Energy Agency said it was watching “with growing concern recent Russian statements and actions, and their potential implications for energy markets.” The organization said it was working with its member countries and partners to ensure there is enough oil on the market to meet demand.
Natural gas
In Europe, natural gas prices have also increased. On Tuesday, they climbed 10% to 80 euros, or 91.65 US dollars per megawatt hour, after Germany announced that it was suspending authorization for the controversial Nord Stream 2 gas pipeline.
However, apart from this sanction targeting the gas pipeline linking Russia to Europe for the supply of natural gas, an installation which is not yet in service, the West is currently ignoring the Russian energy sector. Sanctioning the Russian energy sector, crucial for the country’s economy, is indeed a risky bet for Europe, which imports 40% of its gas from Russia, according to data from Eurostat, the statistical agency of the European Commission. Especially since gas-exporting countries, including Qatar, warned Europe on Tuesday that they had limited capacity to quickly increase its supply.
With Agence France-Presse