By Barani Krishnan
Investing.com -- The much-awaited triple-digit pricing for crude is finally here — seven years, five months and 15 days later, to be precise.
The last time Brent traded at or above $100 a barrel, was on Sept. 9, 2014.
In Thursday’s session, the global benchmark for oil rose to as high as $102.23 after Vladimir Putin finally gave up his pretense of dancing around Ukraine and directed the full force of Russia’s invasive power at his neighbor — fulfilling the threat the White House and the rest of the Western world had warned of for months.
But new sanctions announced by President Joe Biden on Moscow spared Russia’s oil and gas exports, despite appearing to promise some pain for the country’s financial sector. That knocked crude prices off the highs of the day.
“Oil bears took it on the chin at the first sounds of the Russian air raid over Ukraine and got pulverized as crude climbed above $100,” said John Kilduff, partner at New York energy hedge Again Capital.
“But Biden, by avoiding punishment on Russia’s oil and gas sector, delivered the antidote needed to cool crude prices for now and we’re back below $100.”
Brent settled up $2.24, or 2.3%, at $99.08 a barrel.
U.S. crude’s West Texas Intermediate, or WTI benchmark, settled up 71 cents, or 0.8%, at $92.81. WTI hit seven-year highs of $100.54 earlier.
Natural gas futures on New York’s Henry Hub rose as much as 6% to a session high of $4.94 per thermal unit. They later settled at $4.57.
Some argued that the crisis in oil and gas supplies was far from over and price spikes were likely in coming days.
“If you had to write a worst case scenario about the global oil market … this is it,” said Phil Flynn, energy analyst at Chicago’s Price Futures Group. “This is a complete and total disaster right now. Vladimir Putin basically is controlling Europe right now with oil and gas supplies. And we can't do anything to stop that.”
Craig Erlam, analyst at online trading platform OANDA, concurred with Flynn.
“There's enormous uncertainty around how bad the situation will become in Ukraine and what impact that will have on supplies of oil and gas," Erlam said. "The knee-jerk reaction has been strong and we could see prices settle if no further major escalations occur. Unfortunately, that's a massive "if" given how today has progressed.”
Russia produces about 10.5 million barrels of crude per day, or roughly 11% of world supply, according to U.S. Energy Information Administration.
Both the United States and Germany have already acted on the Nord Stream 2 gas pipeline — a pet project of Putin that is supposed to supply to Germany.
But Berlin withheld decision on the more important Nord Stream 1 and Yamal gas pipelines that Russia has running into Europe. This is the network that Europe needs to preserve to literally keep the lights — and heat — on across the bloc. Roughly a third of the gas burned in Europe comes via this source.
Going forth, Europe might have to rely more on imports of U.S. liquefied natural gas amid declining supplies from Africa and Europe’s limited possibilities to raise its own gas production.
“Further out in 2022 and into 2023, we see a risk that European balances could experience a deficit, leaving the region reliant on LNG, which would impact global flows,” Sindre Knutsson, head of Gas Markets Research at Rystad Energy, said in a comment carried by naturalgasintel.com.
“It means Europe will have to compete with global buyers for additional LNG cargoes, which will drive up prices significantly.”
U.S. LNG exports rose by more than 3 billion cubic feet a day in 2021 versus 2020 levels to average 9.8 bcf/d in 2021.
All things being equal, LNG exports growth is set to continue this year and next, reaching 11.5 bcf/d on the average for 2022 and 12.1 bcf/d in 2023, according to EIA projections.
Pricing wise, LNG went from record lows under $2 per unit in 2020 to record highs of $56 in October 2021. Benchmark prices currently stand at about $25 per unit.