Russia’s invasion of Ukraine sent energy prices soaring on Thursday, adding to worries about tight supply and raising new questions about the flow of oil and gas from Russia into Europe in the coming months.
Brent crude crossed the $100/barrel mark, rising about 8% to above $104/bbl, its highest level in more than seven years. West Texas Intermediate crude oil briefly rose above $100 a barrel.
The flow of natural gas in Europe is likely to be disrupted by the conflict in Ukraine, analysts say. Its price has increased by almost 19% to 105.6 euros a megawatt hour on the TTF exchange in the Netherlands.
Richard Bronze, head of geopolitics at Energy Aspects, a research firm, said:
“There is a misconception in the market as recently as yesterday that Putin has had enough of a pause or everything will be limited to the Donbass,” the disputed region in eastern Ukraine, he said.
What worries energy markets primarily, he said, is the potential for Western sanctions to be imposed in response to the invasion. The concern is that those financial penalties will disrupt the flow of oil and gas from Russia, despite promises by Western officials to the contrary.
Mr. Bronze said that some buyers have avoided buying Russian oil while they wait to see how the scope of sanctions will emerge.
In the long-term, Moscow’s aggression toward its neighbours, and the implicit threat to European and global energy supplies could lead to Europe having to work harder to achieve it, analysts say. eliminate dependence on oil and especially on natural gas imports from Russia.
Russia supplies more than a third of the gas to the European Union. Fuel pipelines pass through Ukraine, although volumes through those pipelines have declined in recent months. Europe is also a major buyer of Russian oil.
The conflict is brewing as supplies of oil and natural gas have been scarce for months, driving prices up and creating a situation where the risk of disruptions will rise even higher.
In the case of oil, the key question may be whether flows will be disrupted due to sanctions. Russia is a producer of about a tenth of a barrel of oil globally, so any conflict involving the country is deeply worrisome for oil traders.
If oil prices continue to rise, pressure will increase on countries such as Saudi Arabia and the United Arab Emirates – two of which are believed to have room to increase production – production must be increased.
OPEC Plus, a group that includes OPEC and other producers including Russia, has fallen short of its production target and has been pressed by both Washington and the International Energy Agency to ramp up. However, Russia is the co-leader of the group along with Saudi Arabia, and so such discussions can be very awkward.
OPEC Plus plans to discuss the oil market at its regularly scheduled meetings on Wednesday.
The International Energy Agency, which will likely coordinate the response to the dire impact on global supply, said member countries that are net importers of oil are required to hold 90-day inventories.
The agency said on Thursday that the “immediate highest risk” is 250,000 barrels of oil per day from Russia transiting Ukraine to Hungary, Slovakia and the Czech Republic. That amount is relatively small in a global market that consumes 100 million bpd, but could create problems for those countries.
As for natural gas, the question is whether Russia will continue to supply it to major customers such as Germany and Italy or choose to use the fuel as a weapon in retaliation for sanctions. German Chancellor Olaf Scholz on Tuesday halted the certification of Nord Stream 2, the new $11 billion gas pipeline linking Russia and Germany, prompting an angry response from Russian officials.
If Russia cuts gas exports, Europe will try to differentiate itself from already strained supplies kept in storage, and by scouring the world for more natural gas. more liquefied natural gas. The flow of LNG, mainly from the United States, has exceeded the amount of Russian gas reaching Europe in recent weeks. Such measures would likely benefit Western European countries such as Germany and Italy rather than those in Eastern and Southern Europe with fewer alternatives to Russian gas.
Even without Moscow’s obvious fuel cuts or the war, analysts say there is a significant risk that sky-high gas and electricity prices have hit Europe, say analysts. Europe in recent months will continue indefinitely, squeezing already demanding consumers and, possibly, prompting many businesses to cut production. In recent months, a number of energy-intensive businesses, including fertilizer manufacturers, have announced closures because of high gas costs.
The decommissioning of Nord Stream 2 could be one of the first moves in reorienting European economies away from dependence on Russia, but such a major shift involves many billions of dollars. Investment will take a long time.
“You will certainly see a much stronger focus in Europe on reducing dependence on Russian energy supplies in the medium and long term,” said Bronze. “But it’s an extremely difficult question.”
https://www.nytimes.com/live/2022/02/24/business/stock-market-economy-russia-ukraine Stocks react to Russia-Ukraine crisis: Live business news