All indications suggest oil will be climbing higher over Russia supply concerns. Image Credit: Reuters

Dubai: At $117-$118 a barrel, oil has soared to the highest level since 2008 as buyers continued to shun Russian crude.

The ongoing conflict has sparked supply concerns across commodity markets from energy to grains, prompting consumers including China to scour the globe for raw materials. Buyers are continuing to avoid Russian crude as they try and navigate financial sanctions on Russia, and traders are betting prices will keep rising.

The International Energy Agency has warned that global energy security was under threat and a planned emergency release of crude reserves by the US and others has done little to quell market fears.

Energy crises

The US and its allies have so far refrained from sanctioning Russia’s crude exports due to concerns about the impact of rising energy prices on consumers, but trade is seizing up as banks pull financing and shipping costs spike. Even before the invasion, American retail gasoline was at its highest since 2014.

“There are real fears of a supply squeeze,” said Kim Kwangrae, a senior commodities analyst at Samsung Futures. “If the situation in Ukraine deteriorates, then we’re looking at another rally.”

Crude is on the rise

Brent remains in ‘deep backwardation’, a bullish structure where prompt barrels are more expensive than later-dated cargoes, indicating nervousness over tightening supply. The benchmark’s prompt spread was $5 a barrel, compared with $1.39 at the start of last month.

The Biden administration said that it is seeking to degrade Russia’s status as a leading producer of oil and natural gas by restricting exports of technology related to the energy sector. The world’s oil majors including BP, Shell and Exxon Mobil Corp. have also pledged to exit Russia.

Separately, the Energy Information Administration reported that US crude stockpiles fell by 2.6 million barrels last week. Inventories at the storage hub in Cushing dropped for an eighth week, while gasoline supplies also shrunk.