Oil prices rose on Thursday, with Brent rising above $105 a barrel for the first time since 2014, after Russia’s attack on Ukraine exacerbated concerns about global energy supply disruptions.
Russia launched an all-out invasion of Ukraine by land, air and sea in the largest state-on-state attack in Europe since World War II.
The United States and Europe have promised the toughest sanctions against Russia in response.
“If sanctions affect payment transactions, Russian banks and possibly also insurance covering Russian oil and gas deliveries, supply disruptions cannot be excluded,” said Carsten Fritsch, an analyst at Commerzbank.
At least three major buyers of Russian oil were unable to open letters of credit from Western banks to cover purchases on Thursday, sources told Reuters.
Brent crude rose $8.15, or 8.4 percent, to $104.99 a barrel by 12:21 GMT, after hitting a high of $105.79. US West Texas Intermediate (WTI) crude rose $7.33, or 8 percent, to $99.43.
Brent and WTI reached their highest level since August and July 2014, respectively.
“Russia is the third largest oil producer and the second largest oil exporter. Given low inventories and declining available capacity, the oil market cannot afford major supply disruptions,” said Giovanni Staunovo, an analyst at UBS.
“Supply concerns may also stimulate oil storage activity, which is supportive of prices.”
Russia is also Europe’s largest supplier of natural gas, providing about 35 percent of its supply.
UK Prime Minister Boris Johnson vowed the UK and its allies would unleash a massive package of economic sanctions against Russia and said the West must end its dependence on Russian oil and gas.
China warned about the impact of the tensions on the stability of the energy market.
“All countries that are truly responsible should take responsible measures to jointly uphold global energy security,” a Chinese Foreign Ministry spokesman said.
Global oil supplies remain tight as demand rebounds from coronavirus pandemic lows.
Underscoring the tight market, premiums in one-month cargo crude contracts over six-month cargo contracts, a metric closely watched by traders, hit a record high of $11.55 a barrel.
“This growing uncertainty at a time when the oil market is already tight leaves it vulnerable, so prices are likely to remain volatile and elevated,” said Warren Patterson, director of commodity research at ING.
Analysts believe that Brent is likely to remain above $100 a barrel until the Organization of the Petroleum Exporting Countries (OPEC) has significant alternative supplies.
The United States and Iran have been involved in indirect nuclear talks in Vienna that could lead to the removal of sanctions on Iranian oil sales.
Iran’s top security official Ali Shamkhani said on Twitter Thursday that a good nuclear deal with Western powers is possible after significant progress in negotiations.
Analysts warn of inflationary pressure on the world economy from $100 oil, especially for Asia, which imports most of its energy needs.
“Asia’s Achilles’ heel remains its large need for energy imports, with rising oil prices set to significantly reduce revenue and growth over the next year,” said Frederic Neumann, an economist at HSBC.