Brent crude, for the first time, surpassed US$90 in futures on Wednesday (26th), and arrived at the highest level since 2014, due to the exacerbated tension between Russia and Ukraine, together with the persistently confined supply.
Brent crude surged by over 2% and arrived at US$90.47/barrel that is the first since October 2014, before slightly dropping to US$89.96 as the closing price. Western Texas crude was raised by 2.04% and quoted at US$87.35/barrel. The intraday price of Western Texas crude approached the high point of US$87.95 at one point, which is the first occurrence since October 2014.
Rebecca Babin, an analyst at CIBC Private Health, commented that Russia’s invasion in Ukraine will become a catalyst for crude inflation, and said that more supportive crude purchases will be seen in each passing day of the unmitigated tension between Russian and Ukraine.
Goldman Sachs pointed out on Wednesday that a scission in petroleum supply is unlikely, though energy prices may still increase under the market that is already in severe tension. The company commented, “Commodity markets are increasingly vulnerable to disruptions, after a couple years of historically low outages following the initial COVID shock. Against the backdrop of the tightest inventory levels in decades, low spare capacity and a much less elastic shale sector, this points to the skew of large energy price moves shifting to the upside, reinforcing the case for a rising allocating to commodities in portfolios.”
Goldman Sachs had commented earlier this month that Brent crude may arrive at US$100/barrel during the third quarter. Barclays pointed out that despite prices exerting partial reactions towards geopolitical premium, basic factors are currently causing the actual inflation.
OPEC and oil-producing allies have been transporting crude to the market, though they are unable to increase the production volume. Simultaneously, the US has slowed down on the growth speed of shale oil, and Omicron has now impacted the demand as expected. In addition, the inventory is also depleting as we speak.