By Dan Molinski
The new year is barely a month old but WTI oil prices have already surged by 23% to reach $92 a barrel for the first time since 2014 as geopolitical risk intensifies, and $100 oil is now beginning to look like a sure thing.
“From a technical perspective, oil is on a roll,” Spartan Capital’s Peter Cardillo told The Wall Street Journal, adding Thursday’s topping of the $90 level is “likely to induce further gains with WTI approaching $100 in the intermediate or near term.”
But if the added risk premium from a possible military conflict between Russia and the Ukraine is what helped push the crude market above $90, an actual military conflict may be needed for it to hit $100, some analysts said. And that remains far from certain. What is more, recent price movements suggest any easing of tensions could quickly cause prices to retreat.
Russia began boosting supplies of natural gas to European nations earlier this week, which briefly seemed to suggest the conflict may abate. Additionally, the U.S. on Wednesday provided Russia with written proposals to tamp down military competition in Europe, another indication that some felt could lead to discussions on ways to avoid confrontations.
Oil prices immediately responded, with WTI crude slipping nearly 2% Wednesday night to as low as $86.75 a barrel.
“The Ukraine question has taken a back seat, indicating that the chance the world’s largest energy powerhouses, in terms of fossil fuel output, may manage to avoid military action, as was the case for the entirety of the Cold War,” Louise Dickson at Rystad Energy said after crude prices moved lower. “Neither party wants to turn up the geopolitical heat and fire up energy prices especially when climate-induced price spikes are still a very salient short-term risk and supply chain shortages would likely exacerbate an impact of such an event.”
But just as quickly as the Russian tensions seemed to ease, they ratcheted higher again. NATO Secretary General Jens Stoltenberg told reporters later Thursday that in recent days there has been a significant movement of Russian military forces into Belarus. “This is the biggest Russian deployment there since the Cold War,” he said.
Also, White House officials said Thursday Russia may be planning to fabricate a pretext for an invasion of Ukraine, which sent shock waves in energy markets and served as the catalyst to push WTI crude above $90 after the market failed to do so on various earlier attempts.
But while the Russia-Ukraine conflict could be key to oil’s price-direction in the coming days and weeks, it isn’t the only issue impacting prices.
Investors are watching U.S. crude and fuel inventories that are at bullish, multi-year-lows, but could rise as gasoline and jet-fuel demand remains weak due to lingering Omicron issues and a consolidation of the work-from-home environment.
Also in focus are Iran talks on a nuclear deal, and an ongoing focus on whether other major oil producers such as the U.S. and OPEC members may start ramping up production more quickly ahead of spring and summer driving seasons.
“It seems like $100 oil is not too far in the distant future and that will continue to be followed by growing pressure from worldwide leaders for OPEC-plus to deliver more output,” Oanda’s Edward Moya said.