The global benchmark traded near $95 a barrel, while West Texas Intermediate traded above $93, both about $2 off their highs for the day. Wider markets struck a risk-off tone, with equities in Europe plunging to a three-week low.
While crude has been swinging wildly in recent days as tensions around Ukraine grow, the underlying market remains robust. Physical barrels priced off a key global benchmark are hitting unprecedented levels, and the spread between between Brent crude’s two nearest futures contracts touched $2 a barrel.
Crude is swinging after a flurry of weekend diplomacy over Ukraine — including a telephone call between Presidents Joe Biden and Vladimir Putin — attempted to calm tensions. While Washington has warned a Russian attack on Ukraine may be imminent, Moscow has repeatedly denied that it plans to invade its smaller neighbor.
Oil remains near its highest level since 2014 as the crisis in Europe reinforces a rally that’s been underpinned by soaring worldwide demand, supply interruptions and declining stockpiles. Its run of weekly gains was the longest since October, before the emergence of the omicron virus variant. A potential conflict in Ukraine, coupled with retaliatory U.S.-led sanctions, would risk upending global energy flows.
“I can see the risk premium building together with the tensions in eastern Europe,” said Hans van Cleef, a senior energy economist at ABN Amro Bank NV. “But still I find it hard to believe that in case of escalation there will be sanctions imposed which would prevent Russia exporting oil.”
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U.S. National Security Advisor Jake Sullivan told CNN on Sunday that there’s “a distinct possibility” of major military action very soon. The same day, Biden spoke with Ukrainian President Volodymyr Zelenskiy, telling him that the U.S. and others would act “swiftly and decisively” in the face of any aggression.
Oil option markets saw a surge of activity after prices spiked on Ukraine tensions Friday. Traders are paying bumper premiums for bullish call options, that profit a buyer from higher prices. They’re the most expensive relative to bearish put options since 2019, according to Bloomberg data.
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