For the first time in 13 years, the price of a barrel of US crude oil is around $125. The West Texas Intermediate (WTI) contract surged more than 7% in overnight trading on the New York Mercantile Exchange. Brent, the international benchmark for oil prices, touched as high as $130 per barrel on London’s ICE Futures exchange. Is $150 the next stop for global energy markets? Wall Street is about to tell the world, “I told you so!” The primary reason for the dramatic spike in oil prices is none other than Russia’s invasion of Ukraine and the international community’s latest tactic to punish the Kremlin.
What Took So Long?
The US and its allies are deliberating a ban on Russian oil and natural gas imports, Secretary of State Antony Blinken revealed on March 6. From the beginning of Moscow’s invasion of Ukraine, this has been a point of contention, with many urging the White House to prohibit purchasing Russian energy since this would generate revenue for President Vladimir Putin and support his war effort. So far, the West’s sanctions have mostly refrained from targeting the Eastern European nation’s energy sector.
“We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets,” Blinken told CNN. “That’s a very active discussion as we speak.”
European Commission President Ursula von der Leyen did not fully endorse the proposal in her own interview with the cable news network, noting that her chief aim is to slash Russia’s funding streams. “The goal is to isolate Russia and to make it impossible for Putin to finance his wars. For us, there is a strong strategy now to say we have to get rid of the dependency of fossil fuels from Russia,” she said, adding that banning Russian energy markets would be a “nuclear option” because such a drastic move would weigh on sky-high prices.
This comes after White House Press Secretary Jen Psaki revealed that President Joe Biden is considering at least reducing or halting US imports of Russian crude and exploring alternative methods to minimize the impact on consumers. The Biden administration has been talking with lawmakers after bipartisan legislation was introduced by Sen. Joe Manchin (D-WV) and Sen. Lisa Murkowski (R-AK) to implement an embargo on all energy imports from Russia. “We are looking at ways to reduce the import of Russian oil while also making sure that we are maintaining the global supply needs out there,” Psaki told reporters during a March 4 briefing.
The United States currently imports between 7% and 10% of its oil needs from Russia, totaling nearly 21 million barrels of crude and refined products per month, according to data from the Energy Information Administration (EIA). Europe also relies on about 40% of crude and 30% of natural gas from Russia.
President Biden has attempted to curb prices by tapping into the nation’s Strategic Petroleum Reserves (SPRs). During his State of the Union address, Biden announced that his administration would be releasing 30 million barrels, but the US already consumes at least 17 million barrels per day, leaving energy analysts to purport that this will do nothing to ease the tremendous rally in energy prices. In November, the Oval Office tapped 50 million barrels, leading to a tiny drop in WTI futures that coincided with the Omicron-driven selloff.
Can Iran Save the World?
Over the last month, President Biden and his team have been actively negotiating with Iran on a new nuclear agreement. If approved, sanctions would likely be lifted on Tehran, allowing the Middle Eastern country to inject international oil markets with tens of millions of barrels of oil. That is if the Organization of the Petroleum Exporting Countries (OPEC) allows the regime to be so cavalier if or when it returns to the table. Despite the vast treasure trove of black gold in Iran, some market analysts do not think this would be enough to put a stop to the meteoric growth in prices.
“While some remain transfixed with the idea that an Iran agreement will provide much needed relief (from rising oil prices), we again caution that the deal is still not done and the sums entailed would simply be too small to backfill a major Russian disruption” RBC Capital analyst Helima Croft wrote in a recent research note.
Even if a deal is reached and a nuclear pact cools off prices, “it makes one wonder if anybody in the world has learned anything about depending on bad actors for energy supply,” noted Phil Flynn, the author of The Energy Report, a daily market commentary post.
Pain at the Pump
It is official: The national average for a gallon of gasoline is $4.009. In California, it is above $5 per gallon. The consensus among industry observers is that pump prices will continue to surge. But it is not only the Ukraine-Russia conflict that is leading to a massive push in gas prices. The latest EIA storage report confirmed that total domestic gas inventories declined by 500,000 barrels for the fourth consecutive week to approximately 246 million. Of course, an increase in consumption, a disruption in global flows, and lackluster domestic and international production are ingredients for a recipe of torture for consumers’ wallets. The world can embrace renewables as much as it wants, but experts concur that it will not diminish the public’s agony right now.
~ Read more from Andrew Moran.