Oil Flies Past $110 A Barrel In A Grim Omen For Inflation

Oil prices spiked on Thursday as the Russia-Ukraine war has brought supply concerns to the fore, with investors rushing into resources in a bad sign for already-high global price pressures.

With no respite in sight for the Russia-Ukraine border crisis, oil prices were expected to speed higher on supply concerns for months, tracking the sanctions on Moscow and a flood of divestment from Russian oil assets by significant companies.

"Crude trades higher amid tightness concerns on the back of Russia-Ukraine fight, OPEC+ decision to raise output gradually and unexpected decline in US crude stocks. Crude may continue to trade higher unless there are genuine efforts to resolve Russia-Ukraine tensions, said Ravindra Rao, Head of Commodity Research at Kotak Securities.

Oil flew further past $110 a barrel. Before the crisis, oil prices were trading around $70-$75 per barrel and at that price, the world had finally accepted higher inflation was a serious threat.

"On Wednesday, crude oil settled on a positive note in the international markets as WTI crude settled at $110.60 per barrel and Brent settled at $114.56 per barrel," said Rahul Kalantri, Vice President for Commodities at Mehta Equities. 

"The OPEC+ have decided to maintain an increase in output by 4,00,000 barrels per day in March despite the price surge to record highs, ignoring the Ukraine crisis during their talks and snubbing calls from consumers for more oils. We expect WTI prices could test $120 a barrel and Brent prices could test $125 a barrel in the upcoming sessions," he added. 

Still, Wall Street stocks and Asian bourses eeked out gains after US Federal Reserve Chair Jerome Powell Wednesday indicated rates would rise in March. But Powell said the Ukraine war has made the outlook "highly uncertain."

"Jerome Powell has signalled that the strong economy and elevated inflation makes it appropriate to hike rates in 2 weeks. However, Russia's invasion of Ukraine has created significant uncertainty, meaning no preset path for rate hikes," said James Knightley, Chief International Economist at ING.

"Of course, the uncertainty and the economic hit from sanctions following Russia's invasion of Ukraine are addressed, but there is only so much that the Fed can say and unsurprisingly keep it to stating there will be no preset path to policy tightening and that they will respond to the newsflow/data as it comes," he added.