Oil jumps on sanctions as Russia institutes nuclear alert

Melbourne — Oil prices jumped on Monday on escalating sanctions against Russia over its invasion of Ukraine, which in turn led President Vladimir Putin to put his country's nuclear deterrent on high alert.

Brent jumped back above $100 a barrel, initially surging more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world's second-largest producer could be disrupted. Russia accounts for about 10% of global oil supply.

At 4.28am Brent crude futures were up $3.95, or 4%, at $101.88, after hitting a high of $105.07 a barrel in early trade. Last week the benchmark hit a more than seven-year high of $105.79 after Russia's invasion of Ukraine began.

The April Brent contract expires on Monday.

US West Texas Intermediate (WTI) crude futures were up $4.55, or 5%, at $96.14 a barrel, after hitting a high of $99.10 early in the day. WTI climbed to as much as $100.54 last week.

“Moves by the US and Europe to remove certain Russian banks from the SWIFT system have raised fears of a disruption to supply of some sort in the near term,” said ANZ commodity strategist Daniel Hynes.

“The risk to supply is the greatest we've seen for some time and it comes in a tight market,” he said.

Putin raised the stakes on Sunday, ordering Russia's “deterrence forces” — which wield nuclear weapons — onto high alert, citing aggressive statements by Nato leaders and the range of economic sanctions imposed on Russia by the West. Russia calls its actions in Ukraine a “special operation”.

“President Putin's decision to put Russian nuclear forces on high alert is a clear and worrying escalation that can only be supportive for oil prices,” said Stephen Brennock of oil broker PVM.

Escalating war came days ahead of a March 2 meeting of Opec, Russia and allies, called Opec+. The group is expected to stick to plans to add 400,000 barrels per day (bpd) of supply in April.

Ahead of the meeting, Opec+ revised down its forecast for the oil market surplus for 2022 by about 200,000 bpd to 1.1-million bpd, according to a technical committee report.

Further underscoring how tight the market is, the data also shows stocks in the developed world falling to 62-million barrels below the 2015-2019 average by year’s end.

A separate report showed Opec+ in January produced 972,000 bpd fewer than their agreed targets.

“The market being so tight with Opec producers really struggling to raise output as well, means any issue with Russian supplies would be felt significantly across the market,” ANZ's Hynes said.

Reuters