WTI, Brent Crude Oil Firm on Supply Disruption Concerns

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Tuesday as concerns over potential supply disruption amid Russia’s invasion of Ukraine outweighed talk of a coordinated global release of crude stocks to calm markets, Reuters reported.

At 06:27 GMT, April WTI crude oil is trading $97.28, up $1.56 or +1.63% and May Brent crude oil is at $99.87, up $1.90 or +1.94%. On Monday, the United States Oil Fund ETF (USO) settled at $67.47, up $1.67 or +2.54%.

Monday’s Recap

Oil prices jumped on Monday as Western allies imposed more sanctions on Russia and blocked some Russian banks from a global payments system, which could cause severe disruption to its oil exports. Russian crude oil grades, which account for about 10% of global oil supply, were hammered in physical markets.

Oil Companies Pullout of Russia

Besides the harsh sanctions against Russia from the West, oil companies are pulling out of the country. The move is being led by energy firms BP and Shell which abandoned multi-billion-dollar positions after the invasion of Ukraine.

Shell, BP and Norway’s Equinor all said they would exit positions in energy-rich Russia, putting pressure on other Western companies with stakes in Russian oil and gas projects, such as ExxonMobil and TotalEnergies.

Russian Customers Struggle with Payments and Vessels

Buyers of Russian oil have faced difficulties over payments and availability of vessels after imposition of Western sanctions against Moscow over Ukraine, traders said on Monday, while BP has cancelled fuel oil loadings from a Black Sea port.

The United States and its allies on Saturday moved to block certain Russian banks’ access to the SWIFT international payment system that helps international trade flow smoothly.

Confusion over the sanctions was highlighted by Russian oil producer Surgutneftegaz, which did not award its spot tender for 200,000 tonnes of Urals oil from Baltic ports in March as the company received no bids from buyers.

Freight costs for Russian oil delivery had spiked fivefold in the Black Sea region within a week, traders said, discouraging regular buyers of Urals and CPC Blend.

Short-Term Outlook

We can’t predict when or if volatility will hit the market, but we are fairly certain the situation in Ukraine and financial sanctions against Russia will keep crude oil price bid near $100 per barrel in the near-term and even higher if the conflict escalates further.

A move by the U.S. to stop buying Russian oil or a move by Russian President Putin to cut off supply to Europe could be the next bullish catalysts.

Perhaps capping gains, however, will be a decision by the United States and its allies to coordinate the release of crude stocks to mitigate supply disruptions. This may only be a short-term solution.