Oil prices have rebounded nearly four per cent on both major benchmarks, amid mounting economic tensions between the West and the Kremlin.
With markets increasingly influenced by geopolitical volatility, Brent Crude prices have risen 3.84 per cent to $114.50 per barrel, while WTI Crude has spiked 3.9 per cent to $108.30.
The prospect of a ceasefire between Russia and Ukraine has dimmed, while Germany has announced emergency measures over gas supplies following Russian President Vladimir Putin’s demands for rouble payments from Western nations.
The G7 and European Union (EU) leaders have pushed back against the demands, however the Kremlin has continued its plans and is expected to unveil its rouble payments method for international buyers later this week.
Craig Erlam, senior market analyst OANDA said: “Oil prices are heading higher once more on Wednesday as the prospect of a ceasefire being close quickly faded and the economic war between Russia and its “unfriendly” trading partners ramped up. There’s seemingly no end in sight for increasingly tight oil market and should Russia expand its rouble demands beyond gas and the West tighten sanctions, prices could get much higher.”
Chairman of the State Duma Vyacheslav Volodin warned today that oil, grain, metals, fertiliser, coal and timber exports could also be priced in roubles for EU nations.
OPEC+ unlikely to ease supply shortage fears
Meanwhile OPEC+ is set to meet tomorrow, and the organisation is unlikely to provide relief in a market already plagued by fears of shortening supplies.
It is likely to maintain its gradual output increases rather than raising its supply pledges.
Ahead of the meeting OPEC Secretary General Mohammad Barkindo said OPEC+ participants should “stay the course” regarding the group’s decisions.
The organisation has persistently failed to hit planned increases in production levels of 400,000 more barrels per day – with US and UK calls for supplies to be ramped up falling on deaf ears.
Commerzbank analyst Carsten Fritsch said: “The pronounced price slide, which has exceeded 10 per cent for a time this week, has made it even less likely that OPEC+ will decide at its meeting tomorrow to step up its production to a greater extent. After all, the extended cartel is likely to feel that this confirms its view that the upswing in oil prices was driven chiefly by geopolitical risks rather than by any actual shortage of supply.
Erlam added: “OPEC+ won’t provide any relief, even if it were capable of doing so. Its failure to hit the output targets its set itself is part of the problem, and those that could instead choose to stick by the alliance which claims to be apolitical while turning a blind eye to tight markets and high prices.”
Earlier this month, the International Energy Agency (IEA) warned 3m barrels per day of Russian oil could be cut off from the market following Western sanctions, while it has also warned of a supply deficit of 700,000 barrels per day from the second quarter of this year.
UBS has raised its brent forecast to $95 per barrel from $81 per barrel this year, with the hike primarily by reduced Russian production and higher risk premiums following its invasion of Ukraine.
Meanwhile, the US and its allies are planning new sanctions on more sectors of Russia’s economy that are critical to sustaining its invasion of Ukraine, including military supply chains.
However, the EU remains split on targeting Russian energy supplies with sanctions