Brent hits $90 for first time since 2014 on supply jitters

(Bloomberg) --Brent oil surged above $90 for the first time in seven years as investor appetite for risk assets returned and the market fretted over Russia-Ukraine tensions. 

Futures in New York rose as much as 2.6% with the global benchmark surpassing $90 a barrel on Wednesday. Inventories at the largest U.S. oil hub fell 1.8 million barrels for the third week in a row while total domestic stockpiles rose modestly. The oil market’s structure has surged in recent days, signaling tight supply.

Prices are also moving on mounting concern over a possible Russian incursion into Ukraine, with U.S. President Joe Biden saying he’d consider sanctioning Vladimir Putin if the Russian leader orders an invasion. A potential conflict carries large risks for financial markets -- especially energy commodities such as natural gas and oil.

“How the sanctions would impact Russian oil production getting into the market is the concern,” said Rob Thummel, Tortoise portfolio manager. “In a global oil market that’s having a hard time with supply keeping up with the demand, less Russian oil supply would temporarily push up prices.”

Crude is having a volatile week, slumping Monday then rebounding Tuesday. Prices are at a seven-year high with demand continuing to recover from the pandemic as mobility picks up. A string of Wall Street banks including Goldman Sachs Group Inc. have forecast oil will hit $100 a barrel this year as the global market tightens. Adding to tighter market constraints, OPEC+ is expected to stick to their plan and ratify another modest production increase next week.

Brent’s run to $90 could bring a raft of options into the money. Traders are watching the approximately 10,000 March $90 calls that are expiring on Wednesday. If the global benchmark settles above the key marker that would bring the options into the money. The option expiry date could be a risk to prices and spur volatility into the day’s close.

Prices:

• West Texas Intermediate for March delivery rose $1.93 to $87.53 a barrel at 11:54 a.m. in New York
• Brent for March settlement rose $1.89 to $90.09 a barrel

In the EIA weekly report, Cushing crude stockpiles fell for the third week in a row last week to 31.7 million barrels, getting close to the 30--million-barrel level that traders watch as a warning signal for low inventories. Draws in the storage hub are a key reason why the WTI prompt spread is rallying to levels last seen in November.

“Anyone who has not participated in the ‘energy’ rally may start to really feel the need to get exposure,” which may nudge the market a leg higher, said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.