Oil Feared to Rise to $125 per Barrel

The ongoing crisis in Ukraine caused the price of oil to soar by 11% on Tuesday to reach a staggering $106 per barrel. However, fears are that this seven-year high could be eclipsed by price rises that would take the price of oil up to $125 per barrel if further sanctions are brought in against Russia.

US oil prices reached their highest mark since June 2014 as Russia’s invasion of Ukraine intensified this week. The price of West Texas Intermediate crude jumped over 11% to trade at $106.89 per barrel, while the price of Brent crude saw a high of $107.57 per barrel.

The price of oil breached the $100 benchmark last week when Russian troops first entered Ukraine. With the situation on the ground getting evermore serious, it is feared that the West will have little option but to introduce further sanctions against Russia. While the existing sanctions have been targeted at Russian interests away from oil, the efforts are gradually having the effect of stopping traders from investing in assets linked with Russian oil.

With Russia being the world’s second largest-exporter of natural gas and the third-largest exporter of oil, the sanctions will certainly have a negative impact on the supply of fuel. Such a continuation of energy price rises is feared to hit the $125 mark which will certainly have an effect on the US economy as consumer spending will be hit and inflation rates will continue to skyrocket.

What can be done to keep oil prices down?

This week has seen renewed efforts from OPEC+ to increase oil production in order to help the global market. The energy alliance made a pledge to introduce an output rise in April although this rise may be significantly smaller than what is required to keep oil prices down.

Despite this, the fact that OPEC+ is willing to increase the output of oil by 400,000 barrels a day is an indication of just how serious the situation is getting. In addition to this, the US has made plans to release 30 million barrels from its own Strategic Petroleum Reserve.

There is plenty of attention on Saudi Arabia who is felt to be hesitant about increasing oil output in a way that could help to stave off the aggressive price rises. It is adding to a complicated picture of how geopolitical tensions are creating havoc in the oil markets.

With plenty of major oil brands in the West pulling out of their Russian interests, nations like Saudi Arabia and the UAE are effectively being forced to choose which side they are aligning with.

Further afield, Canada has taken the extreme measures of banning oil imports from Russia completely, while Chinese banks are also pulling back from the financing of commodities trading. All of which means that oil prices are likely to remain high as long as the current conflict keeps escalating.

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