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Russian Strikes in Ukraine Push Prices to Multiyear Highs

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Oil prices surged another 7% today. At peak intraday highs, WTI hit $105.14/bbl before settling at $103.41.

Refined products followed suit skyward, with front month ULSD up +.2198 to $3.1511, and RBOB up .1562 to $3.0887 (May trading closed +.1915, $3.0381 ULSD/+.1532 $3.0621 RBOB).

Monday we saw WTI close over $100/bbl for the first time since 2014.

The obvious driver for the spiking prices we’ve been seeing has been the ongoing military strikes in Ukraine by Russia, and the resultant fears of not just supply disruptions themselves, but the further impacts that multinational involvement in the conflict could have globally.

Today, the US and allies (Germany, the UK, Italy, Japan, Netherlands, and South Korea) announced their agreement to release 60 million barrels from strategic reserves, half of which will come from the United States.

Markets were not comforted much by the announcement (although we did see a slight tempering), largely because the strategic reserve release is much more a symbolic gesture than one that solves supply concerns on a fundamental level.

A multinational agreement to release gallons is more of a statement of solidarity against what is seen as Russian aggression, and a message that countries are willing to take extraordinary measures to prevent global impacts rather than softening their stance on Ukraine. It’s also meant to reassure citizens of allied countries that are facing rapidly increasing prices at the pump that all available measures are being taken to minimize the impact. Currently AAA figures have gas prices in the US averaging $3.62 today, up 9 cents this week and 24 this month, and without a reversal on the markets and an end to the Russia-Ukraine war, that’s not likely to change.

Other measures being taken on the Energy Market side of things have included talks with the Saudis about supply adjustments to backfill any potential shortfalls. It’s unclear that such a jump in production for stability of the markets would be in the cards, however. The thought seems to be that assistance from OPEC/Saudi countries to offset disruption would mostly be necessary should Russia choose to restrict supply or short commitments in an attempt to manipulate the situation. As of right now, they have not given any indication that would be their next move, but as sanctions begin to take severe effect on the Russian economy, essentially anything is possible.

Sanctions and specific company withdrawals from Russia seem to be having impact already on some fronts. Maersk, the worlds largest shipping firm, has halted service to and from Russia, and countries like Britain are not accepting Russian ships at their ports. Major oil companies, including BP and Shell are exiting Russian operations, and TotalEnergies announced a halt to any further capital investment in Russian projects. The Ruble (Russian currency) is tanking after SWIFT banking sanctions took effect and it is currently valued at less than a penny in American dollars.

Long story longer, the situation is very much ongoing, escalating, and uncertain on the ground in Russia, and it remains anyone’s guess how the real world impacts and the market impacts will shake out.

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Houston & Ukraine Concerns Drive Early Week's Market Swings

 

Sinking barge

(USCG Photo/Reuters)

The first half of the week saw futures up and down on reactions to international tensions, and on the news of the 22nd’s collision between a bulk carrier and a barge resulting in the temporary closure of the Houston shipping channel connecting the Gulf of Mexico with Gulf Coast refineries. The collision resulted in a spill of up to 170,000 gallons of bunker fuel into Galveston Bay and caused immediate closure for cleanup operation, according to the AP in Houston. Tuesday saw the channel partially reopen, but the Coast Guard reported it would be an additional several days before it reopened to full capacity. About 10% of US refining capacity is based in the Gulf area. The positive news is that the channel will reopen relatively quickly and isn’t anticipated to have any long term price implications.

Of more concern for long term energy pricing is the growing and continued tension over Russia’s annexation of Crimea, and the potential impacts on the European energy situation that could hike prices significantly. We will likely see impact of US and/or G7 proposed sanctions begin to hit the markets this week or next, especially if significant action is taken on the proposed intervention on Russian oil nat & gas dependency, and on Emergency Funding measures for Ukraine. In the US, the Senate voted down the IMF/Ukraine Emergency fund Legislation presented on Tuesday, but another vote on the bill without the more controversial IMF reforms included is scheduled for Thursday, and according to both Speaker Boehner and Senate Majority Leader Reid, it is expected to pass both houses.


 

 
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