Oil prices approached $US100 ($138) a barrel the highest in more than seven years, and European gas futures briefly jumped more than 13 per cent, amid rising concerns over armed conflict in Ukraine after the Kremlin ordered Russian troops into separatist territories late Monday.
The price of Brent crude, the international benchmark, neared the $100-a-barrel mark Tuesday before easing off to about $97 a barrel, a 2 per cent increase. West Texas Intermediate was trading at nearly $94 a barrel, up about 3 per cent.
European natural gas futures are especially sensitive to the latest news, because Russia provides more than one-third of Europe’s supply, with some of it running through pipelines in Ukraine. Dutch front-month gas futures jumped 13.8 per cent when trading started Tuesday, then eased a bit to about 80 euros (about $91) a megawatt-hour, up almost 10 per cent.
After oil prices spent a week more or less flat, uncertainty has gripped the markets in recent days. Prices went higher Sunday as more troops massed at Ukraine’s border, then fell again as diplomatic solutions seemed more plausible.
An invasion could interrupt Russian natural gas and oil shipments to parts of Europe and then be followed by a decline in purchases of Russian energy by the West. Russia produces about 10 per cent of world oil supplies and, in recent years, about one-third of Europe’s gas. In recent months, Russian gas flows to Europe have dropped sharply, with much of the shortfall made up by liquefied natural gas shipments from the United States and elsewhere.
A key issue is how far the West would go in imposing sanctions that might crimp Russia’s oil and gas business, which is critical to the nation’s economy and a major source of revenue for the Kremlin’s budget.
Analysts say that Western nations may try to avoid hitting oil and gas exports because of the potential effect on world energy markets, especially in Europe, which is already struggling with high prices for gas and electricity.
But some of the financial sanctions being considered, including restrictions on dealing with major Russian banks, could disrupt Western payments for the oil and gas, which account for about half of the country’s exports.
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