Oil Hits Multi-Year Highs on Potential Supply Disruptions

U.S. West Texas Intermediate and international benchmark Brent crude oil are trading at multi-year highs on Friday as geopolitical tensions and a winter storm in the United States fueled concerns over supply disruptions.

At 13:26 GMT, March WTI crude oil is trading $91.98, up $1.71 or +1.89% and April Brent crude oil is at $92.73, up $1.62 or +1.78%. On Thursday, the United States Oil Fund settled at $63.53, up $1.01 or +1.61%.

Escalating Tensions in Eastern Europe

WTI and Brent crude oil have been supported over the near-term by tensions surrounding the Ukraine crisis, which have heightened concerns over oil supplies that are already tight.

The price action suggests that a war between Ukraine and Russia could spike prices higher, but more importantly, it could have long-term ramifications because Russia controls the energy (crude and natural gas) that flows into Europe.

Energy policies in Europe have made the region reliant on supplies from Russia so a protracted war or severed relations my lead to Russia cutting off supplies. If Europe can’t get crude oil and natural gas from Russia then it will have to rely on the United States and the Middle East to meet demand, pulling supply from other high demand areas and consequently driving prices higher.

Winter Storm Wreaks Havoc on Central, Northeast US

A massive winter storm swept across the central and Northeast United States on Thursday where it was delivering heavy snow and ice, making travel treacherous if not impossible, knocking out power to thousands and closing schools in several states, Reuters reported.

Winter and ice storm warnings remained in effect for a wide swathe of the United States that reached from Texas up through the Midwest and into New England until Friday morning, the National Weather Service (NWS) said.

Traders are saying the cold snap in Texas is fueling concerns about production outages in the Permian Basin, the largest U.S. shale play.

Texas governor Greg Abbott said on Thursday that the state’s power grid is “fully functioning and continues to be reliable.” Last winter, a deadly deep freeze crippled the grid, leaving millions without power.

“Texas is experiencing one of the most significant ice events in decades,” Abbott said.

Short-Term Outlook

Prices are edging toward $100 per barrel well-ahead of schedule, but an early test of this level is likely to bring in the short-sellers and hedgers since this current move is being fueled by short-term events.

Longer-term, the market is being well-supported by the OPEC+ moderate increases and rising demand, short-term, we’re seeing a surge due to speculation of a war between Russia and Ukraine and supply disruptions in Texas.

OPEC+ is likely to maintain policy for months despite pressures from the United States and other countries to raise production, but the weather will improve. This leaves the Russia/Ukraine situation as the wildcard that could push prices well-above $100 per barrel, or back to the $80 per barrel area.