What Analysts From ING to Eurasia Are Saying on Ukraine and Oil

(Bloomberg) -- Brent crude surged past $100 a barrel for the first time since 2014 as Russian forces attacked cities across Ukraine in a dramatic escalation. That’s raising the alarm that crude could keep shooting higher, adding inflationary pressure to the global economy. Here’s what analysts have to say about the Russia-Ukraine crisis and the impact on oil.

Eurasia Group

The U.S. and Europe will almost certainly respond in the coming hours and days with a far-reaching package of sanctions, Eurasia Group analysts said in a note. Given the severity of the Russian actions, we expect Western policy makers to go beyond their worst-case scenario plans, which puts Russia’s expulsion from the SWIFT financial messaging system in play. The Nord Stream 2 pipeline will be sidelined indefinitely. Oil and gas prices will rise significantly, reinforcing inflationary pressures and weighing on financial markets and global growth. While Western governments probably will exempt energy transactions from sanctions, the blizzard of new restrictions will force many traders to be exceedingly cautious in handling Russian barrels. 

Rapidan Energy Group

Russia’s onslaught against Ukraine will sustain a risk premium in crude prices until it becomes clearer whether physical supplies are likely to be interrupted by sanctions, unilateral limits, bans, or fighting, said Bob McNally, a former White House official who heads Rapidan Energy Group. If no major supply interruption materializes, crude prices will likely retrace as Russia’s attack shifts to more of a macro bearish factor rather than a bullish supply threat, the founder of the Washington-based consulting firm said.

Crystol Energy

If there’s further escalation, it’s possible that OPEC increases production, said Carole Nakhle, founder of consultant Crystol Energy. If the alliance think this will threaten the stability of oil markets, I can see them putting more barrels on the market, she said. It would probably be down to the likes of Saudi Arabia and the United Arab Emirates to boost supplies because many of the group’s other members would struggle, Nakhle said on a podcast produced by Dubai-based consultant and publisher Gulf Intelligence.

UBS

Falling oil inventories and dwindling spare capacity caused by oil demand reaching a new record high this year are supporting this super-backwardation, Giovanni Staunovo, an analyst at UBS AG, said in a note. Another likely factor supporting the backwardation structure is refineries looking for alternatives to Russian crude in fear of sanctions, as visible in the steep discount of Urals versus Brent.

ING Groep NV

The oil market will now wait to see how Western nations respond to Russia’s latest actions and that’s likely to result in even further price volatility, said Warren Patterson, head of commodities strategy at ING Groep NV. There will be continued upward momentum, as the market will need to price in a larger risk premium, he said.

Vanda Insights

Putin’s moves could provoke the full onslaught of U.S. and EU sanctions, putting Russian energy supplies to Europe in the cross hairs, said Vandana Hari, founder of oil market analysis provider Vanda Insights. Crude’s rally may have only just begun, as the full impact on global oil and gas supplies is yet to be seen and factored in, she said. OPEC+ has some spare capacity, but whether the alliance will deem it prudent to tap into that capacity and how quickly it could unleash the barrels is a question mark, Hari said. 

ANZ Banking Group

Heightened geopolitical risks have had differing impacts on the oil market, Australia & New Zealand Banking Group Ltd. analysts Daniel Hynes and Soni Kumari said in a note. Both the Gulf War and the Iraq War saw oil spike sharply, however prices quickly gave back those gains once the risk dissipated. The potential disruption to supplies in the current situation is nearly twice the level seen then. We view the likelihood of sanctions being placed on Russian crude oil as relatively low, so any risk premium would quickly be erased should the risk subside.

JTD Energy Services

Russia-Ukraine has added a whole new level of volatility and uncertainty, although there’s a lot of bullish sentiment in terms of market fundamentals, said John Driscoll, chief strategist at JTD Energy Services Pte. While an Iran accord is likely to be built into current prices, oil markets are likely to remain volatile to the upside, he said.

VI Investment Corp.

Oil could jump by another $10 a barrel as the conflict intensifies but an agreement could be reached after a series of operations, according to Will Sungchil Yun, senior commodities analyst at VI Investment Corp. in Seoul. That could stabilize markets and ultimately pull prices down, and if an Iranian nuclear deal is achieved, more downside pressure will be added, he said.

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