Oil prices rose above $100 after Putin announced a military operation in Ukraine

Brent crude, the global benchmark, added 8.5% to trade at $105.40 a barrel by 5:30 AM ET on Thursday. Brent crude last traded above $100 per barrel in 2014. US oil prices rose 8% to more than $100 per barrel.

A massive attack by Russian forces targeted military infrastructure across Ukraine as well as several airports early Thursday. The offensive began hours before dawn and spread rapidly into central and eastern Ukraine as Russian forces attacked from three sides.

Russia is the world’s second largest oil producer and a major exporter of natural gas. Supply disruptions could drive up retail prices, making it more expensive for Europeans to refuel their cars around the world to heat their homes. Gasoline prices are already at record levels in parts of Europe.

Global oil supplies were already very scarce.

Crude oil for near-term delivery is commanding a record premium over long-term contracts, according to analysts at UBS, as investors react to falling inventories and increasing demand. They added that some refineries are avoiding buying Russian oil due to concerns about sanctions.

Prices have been rising steadily for nearly a year, driven by increased demand after the easing of pandemic lockdown measures. The Organization of the Petroleum Exporting Countries (OPEC) and ten other major crude oil producers, including Russia, are gradually increasing production, but they are struggling to meet their production targets despite massive pressure from major energy consuming nations to pump more.

The Ukraine crisis adds another dimension to the charged politics of the OPEC+ alliance. The Russian economy is highly dependent on oil and gas revenues, and Moscow wants prices to remain high. Saudi Arabia – a key ally of the United States – will now come under heavy pressure from advanced economies to increase production.

The tight market and armed conflict in Europe is a powerful combination. Oil prices could stabilize at $140 a barrel in the coming days Worst case scenario where energy flows are disrupted, according to analysts at Capital Economics.

The International Energy Agency warned earlier this week that military action could jeopardize 250,000 barrels per day of Russian oil exports that pass through Ukraine via a pipeline supplying Hungary, Slovakia and the Czech Republic. However, those countries have a large stockpile of emergency stocks.

There are limited sources of additional supply. Higher prices will encourage US shale oil producers to increase production. A nuclear deal between Iran and the West that eases sanctions on the OPEC member could also bring more barrels to the market.

“The Iran nuclear deal that removes sanctions and increases production remains a key card, but the market will increasingly need additional oil,” said analysts at S&P Global Platts Analytics.

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