Crude hits US$139/barrel as US considers ban on Russian oil imports

Stockpiles of many key commodities were already running low before Russia invaded Ukraine late last month. Photo / AP

Oil and natural gas prices rose sharply on Monday as the prospect of a western embargo on Russian crude sparked concerns that a global raw materials supply crunch will get worse.

Brent crude, the international benchmark, surged to a high of US$139 (NZ203) — a level last hit 14 years ago — after the US said it was in "active discussions" to ban Russian oil imports. Prices for European gas, a fuel that is used across industries, also hit a new peak, spiking by almost 80 per cent.

Stockpiles of many key commodities were already running low before Russia invaded Ukraine late last month, just as the global economy was revving up in the aftermath of coronavirus lockdowns. However, the war in eastern Europe has deepened concerns over supply disruptions.

"Global oil markets are in the throes of the biggest crisis for decades," said Ehsan Khoman, head of emerging markets research for Emea at MUFG. "Oil's rally will accelerate inflation, rates will go much higher, financial conditions will tighten significantly, consumers will be squeezed and corporate activity will be jolted. Recessionary territory is on the horizon."

Monday's shifts in energy markets came after Antony Blinken, US secretary of state, said Washington was in "very active discussions" with European allies over an oil ban following Russia's invasion of Ukraine.

German chancellor Olaf Scholz later pushed back against the idea of a European embargo on Russian oil imports, arguing that he wanted to focus on "sustainable" pressure that would not be too much of a burden on citizens.

"All our steps are designed to hit Russia hard, and be sustainable over the long term," Scholz said in a statement. "At the moment, Europe's supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens."

Oil prices fell from their high following Scholz's comments, with Brent pulling back to around US$120. Gas also slipped from the day's high of €345 a megawatt hour to trade at about €240.

Global equities traded choppily as investors debated how much damage the conflict would wreak on developed economies.

In the US, Wall Street's S&P 500 lost 1.5 per cent, while the technology-heavy Nasdaq Composite dropped 1.9 per cent.

Europe's regional Stoxx 600 share index, which last week dropped 7 per cent in its worst performance since March 2020, fell more than 3 per cent in early dealings before trimming its losses to trade down 0.8 per cent. The Stoxx sub-index of European bank shares dropped 3.6 per cent and is down by more than a quarter since the week ending February 18.

"While the market had assumed sanctions would be somewhat toothless, we now see the US administration will go to some lengths to punish Russia," said Altaf Kassam, head of European investment strategy at State Street Global Advisors.

In currencies, the euro fell 0.4 per cent to $1.09, around its weakest level against the dollar since May 2020. The rouble weakened to as much as Rbs145 against the dollar, marking a record low for the Russian currency.

The spot gold price breached $2,000 for the first time since August 2020 as investors sought shelter from market risk in the haven asset.

Written by: Naomi Rovnick, Neil Hume and Hudson Lockett
© Financial Times