Energy prices hit record highs as OPEC remains limp

The Organisation of the Petroleum Exporting Countries has dismissed the need to combat soaring oil prices with increased output, despite the US now threatening to impose sanctions on Russian energy exports.

Oil prices soared and European gas reached its highest level on record.

At its meeting on Wednesday, OPEC and its allies, which include Russia, maintained a commitment to a 400,000 barrel a day increase in supply in April in a meeting that lasted just 15 minutes.

The price of Brent crude soared 9.1 per cent to $US114.55 a barrel, while WTI crude climbed 7.7 per cent to $US111.40 a barrel, with no supply relief in sight.

OPEC said the increase in prices had been driven by geopolitical tensions and not market fundamentals.

“The group justified the decision on the grounds that geopolitics, not changing market fundamentals, were pushing crude to current levels,” said Helima Croft, RBC Capital Markets head of global commodity strategy.

“And yet, such an argument will increasingly strain credulity as Russian export volumes collapse due to a buyers strike and a divestiture movement that is gathering speed like a runaway train.”

While Mexican energy minister Rocio Nahle had tried to raise the subject of Russia, other members swiftly moved on to other matters.

Supporting the premium in the market were comments by US President Joe Biden, who signalled he was open to imposing sanctions on oil and gas imports.

The comments lit a fire under European gas prices, with Dutch TTF gas futures soaring as much as 60 per cent to a record high of €194.72 a megawatt hour.

Just a day earlier, JPMorgan had suggested a total cut off of Russia gas supplies, which it viewed as a worst-case scenario, would push prices above €200 a megawatt hour.

“At a bare minimum we believe that TTF price will have to average at an egregiously high level in order to force natural gas demand destruction around the world,” JPMorgan said.

The price moves suggest markets are close to fully pricing in a total cut-off of energy supplies from Russia.

Earlier this week, Morgan Stanley upgraded its near-term oil price forecasts, saying the events in Ukraine have introduced a risk premium in oil which is likely to remain in place for the next few months.

The broker is forecasting Brent crude to average $US110 a barrel during the second quarter of the year, up from its previous forecast of $US95 a barrel. Morgan Stanley is expecting the price to average $US100 a barrel for the remainder of the year, consistent with its previous forecast.

West Texas Intermediate is expected to average $US107.50 a barrel in the second quarter, up from $US92.50 a barrel. And it is forecasting WTI to average $US97.50 a barrel for the remainder of the year, unchanged.

Some market participants have been hopeful a deal with Iran could provide some relief if it were allowed to exit sanctions, however, Iran would be unable to backfill a major supply disruption from Russia.

While Russia exports 5 million barrels of crude per day, commodity analysts are expecting Iran will only be able to ramp up production sufficient to supply 3.3 million barrels a day by December.