May 18, 2022

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Oil rises as Russian energy supply concerns escalate

Oil rises as Russian energy supply concerns escalate

Models of oil drums and a pump crane are displayed in front of the colors of the Ukrainian and Russian flags in this illustration taken, February 24, 2022. REUTERS/Dado Ruvic/Illustration

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  • Brent and West Texas Intermediate futures rose $7 in early trade
  • Russia faces disruptions to oil exports without SWIFT system
  • OPEC+ revises market surplus estimates for 2022
  • Goldman Sachs raised its one-month forecast for Brent crude to $115

LONDON (Reuters) – Oil prices jumped on Monday as Western allies imposed more sanctions on Russia and blocked some Russian banks from implementing a global payments system, potentially causing severe disruption to its oil exports.

Brent crude rose $4.82, or 4.9 percent, to $102.75 by 1028 GMT, after touching $105.07 a barrel in early trading.

The Brent contract for April delivery expires on Monday. The most active contract for May delivery rose $4.74 to $98.86.

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US West Texas Intermediate crude rose $4.62, or 5%, to $96.21, after hitting $99.10 in early trading.

“Rising concerns about disruption to Russian energy supplies are pushing oil and gas prices up sharply,” said Carsten Fritsch, analyst at Commerzbank.

Russia is facing severe disruption to its exports of all commodities, from oil to grain, after Western countries imposed tough sanctions on Moscow and isolated some Russian banks from the international SWIFT payment system. Read more

Grades of Russian crude oil, which account for about 10% of global oil supply, have been hit on physical markets.

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Goldman Sachs raised its one-month forecast for Brent price to $115 a barrel from $95 previously. Read more

“We expect higher prices for consumer goods, of which Russia is a major producer, from here – and that includes oil,” the bank said.

Russian President Vladimir Putin put Russia’s nuclear deterrent on high alert on Sunday. Read more

The Interfax news agency said Russian forces had captured two small towns in southeastern Ukraine but faced stiff resistance elsewhere. Read more

A Ukrainian presidential adviser said that talks between Ukraine and Russia began on the Belarusian border, with the aim of agreeing to an immediate ceasefire. Read more

“If there is any progress made at this meeting, we will see a sharp reversal in the markets — we will see stocks rise, the dollar rise, oil fall,” said Jeffrey Haley, an analyst at OANDA.

British oil giant BP has decided to withdraw from its investments in Russian oil and gas, opening a new front in the West’s campaign to isolate the Russian economy. BP is the largest foreign investor in Russia. Read more

“It is likely that in the medium to long term, sanctions and the displacement of Western oil companies will lead to a decrease in Russian oil and gas production,” Fritsch said.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, in what is known as OPEC+, are due to meet on March 2. The organization is expected to comply with plans to add 400,000 barrels per day of supplies in April.

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Prior to the meeting, OPEC + reduced its forecast for the oil market surplus for 2022 by about 200 thousand barrels per day to 1.1 million barrels per day, which confirms the scarcity of the market. Read more

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Additional reporting by Bozorgmehr Sharafuddin in London Additional reporting by Sonali Paul in Melbourne and Alex Lawler in London Editing by David Goodman

Our criteria: Thomson Reuters Trust Principles.