May 24, 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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  • 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 $2.32, or 2.4 percent, to $100.25 by 1436 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 was $3.14 at $97.26.

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US West Texas Intermediate crude rose $3.09, or 3.4 percent, to $94.68, 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

“Russia can respond to these harsh measures by reducing or even suspending energy shipments to Europe entirely,” Fritsch said.

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

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

“We expect prices for consumer goods, of which Russia is a major producer, to rise 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

Analysts said that sanctions and the exodus of Western oil companies may affect Russian oil production in the near term.

Oil prices came under pressure after the Wall Street Journal reported that the United States and other major oil consuming nations were considering releasing 70 million barrels of oil from emergency stocks.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, in what is known as OPEC+, are due to meet on Wednesday. The group is expected to stick to plans to add 400,000 bpd of supply 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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(Bozorgmehr Sharafeddin Report) from London. Additional reporting by Sonali Paul in Melbourne and Alex Lawler in London. Editing by David Goodman, Carmel Crimmens and Mark Porter

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