Oil and natural gas prices see-sawed on Monday after a US push to ban Russian crude faced German resistance, leaving markets rattled over the threat of energy sanctions cascading through the global economy.
On an extraordinary day of trading volatility, the international benchmark Brent crude surged to a high of $139 — a level last hit 14 years ago — before falling back to around $120.
The price spike came after Joe Biden’s administration signalled it was open to a freeze on Russian oil imports, setting aside initial reservations over the hit to consumers. But the cost of crude fell back after German chancellor Olaf Scholz expressed reluctance to restrict trade of “essential importance” to Europe’s economy, though the UK said it was considering a ban.
Natural gas prices were also roiled by the debate, climbing as high as €345 a megawatt hour before slipping back to trade at about €214. This remains far above the €16 they were trading at one year ago.
With concern rising over the humanitarian situation in Ukraine, Biden hosted a two-hour call with the leaders of France, Germany and the UK in a bid to raise pressure on Russian president Vladimir Putin and co-ordinate a response.
The discussions followed another day of grinding conflict in Ukraine, where Russian forces continued to bombard frontline cities while attempting to address the severe logistical issues that have hampered their ground offensives, particularly in the north.
A senior US defence official said nearly 100 per cent of the Russian troops massed on Ukraine’s borders had now moved into the country and Putin was now trying to bring in foreign fighters, including from Syria, to bolster his forces.
Even before Russia invaded Ukraine last month, stockpiles of many key commodities had already been running low as the global economy began to throw off the constraints of Covid-19 lockdowns. The Ukraine war has deepened concerns over a supply crunch.
“Global oil markets are in the throes of the biggest crisis for decades,” said Ehsan Khoman, head of emerging markets research for Europe, the Middle East and Africa at MUFG. “Oil’s rally will accelerate inflation, rates will go much higher, financial conditions will tighten significantly, consumers will be squeezed and corporate activity will be jolted. Recessionary territory is on the horizon.”
Monday’s volatility spread across commodity markets. In one of the most extraordinary moves ever seen on the London Metal Exchange, the benchmark nickel contract surged more than 70 per cent to a 15-year high above $50,000 a tonne as those holding short positions rushed to cover their trades.
The sharp moves came after Antony Blinken, US secretary of state, said Washington was in “very active discussions” with European allies over an oil ban. With political support for a tougher measures growing in Washington, senior US lawmakers said on Monday they had agreed a plan to introduce bipartisan legislation banning US energy imports from Russia and Belarus, and suspending normal trade relations with both countries.
In a joint statement, the top Democrats and Republicans on the trade committees of both the House of Representatives and the Senate said they had all agreed on a “legislative path forward” to “send a clear message to Putin that his war is unacceptable”.
The tougher approach stands at odds with Scholz, who argued for “sustainable” pressure that would not be too much of a burden on citizens. “All our steps are designed to hit Russia hard, and be sustainable over the long term,” Scholz said in a statement. “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way.”
Asked about Scholz’s comments, Wendy Sherman, US deputy secretary of state, stressed that while co-ordination between allies was important “we have not been completely identical on all of the sanctions”.
Boris Johnson said on Monday that Britain could place a ban on Russian oil, which accounts for 8 per cent of UK oil consumption. British officials confirmed a ban was being considered.
The UK prime minister told a Downing Street press conference: “Something that perhaps three or four weeks ago we would never have considered is now very much on the table.”
Russia’s economy has been battered by trade curbs and a corporate boycott that has spread to all aspects of consumer life, from Disney movies and Ikea furniture to spare parts for cars.
But Moscow has continued to receive strong backing from China, which has bucked international calls to condemn Putin’s invasion of Ukraine. Wang Yi, China’s foreign minister, defended China’s “everlasting friendship” with Russia and criticised the US for trying to establish an “Indo-Pacific version of Nato”.
He reaffirmed an “unequivocal message to the world that China and Russia jointly oppose attempts to revive the cold war mindset”.
Additional reporting by Erika Solomon in Berlin and Myles McCormick in Houston
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