Oil prices jumped on Monday due to escalating sanctions against Russia for its invasion of Ukraine, leading President Vladimir Putin to put his country’s nuclear deterrent on high alert.
Brent crude rose back above $100 a barrel, initially jumping more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world’s second-largest producer could be disrupted. Russia accounts for around 10% of the world’s oil supply.
As of 0228 GMT, Brent crude futures were up $3.95, or 4%, at $101.88, after hitting a high of $105.07 a barrel in early trading. Last week, the benchmark hit a more than seven-year high of $105.79 after Russia began its invasion of Ukraine.
The April Brent contract expires Monday.
U.S. West Texas Intermediate (WTI) crude futures rose $4.55, or 5%, to $96.14 a barrel, after hitting a high of $99.10 early in the day. WTI climbed as high as $100.54 last week.
“The moves by the US and Europe to remove some Russian banks from the SWIFT system have raised fears of a near-term supply disruption,” said Daniel Hynes, commodities strategist at ANZ.
“The supply risk is the greatest we’ve seen in some time and it comes in a tight market,” he said.
Putin upped the ante on Sunday, ordering Russia’s ‘deterrent forces’ – which use nuclear weapons – to go on high alert, citing aggressive statements from NATO leaders and the range of economic sanctions imposed on Russia by the West. Russia calls its actions in Ukraine a “special operation”.
“President Putin’s decision to put Russian nuclear forces on high alert is a clear and worrying escalation that can only support oil prices,” said Stephen Brennock of oil broker PVM.
The escalation of the war came days before the March 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC), Russia and its allies, collectively called OPEC+. The group is expected to stick to its plans of adding 400,000 barrels per day (bpd) of supply in April.
Ahead of the meeting, OPEC+ revised down its 2022 oil market surplus forecast by around 200,000 bpd to 1.1 million bpd, according to a technical committee report reviewed by Reuters on Sunday.
Further underscoring how tight the market is, the data also showed inventories in the developed world fell to 62 million barrels below the 2015-2019 average by the end of the year.
A separate report showed that OPEC+ in January produced 972,000 bpd below their agreed targets.
“With the market so tight, with OPEC producers also struggling to ramp up production, any Russian supply issues would be felt quite significantly across the broader market,” ANZ’s Hynes said.