© Bloomberg. The Sinclair Wyoming Refining Co. oil refinery in Sinclair, Wyoming, U.S., on Thursday, Feb. 24. 2022. Oil extended its retreat from a seven-year high, slipping back below $100 a barrel in London, as Russia’s invasion of Ukraine forced traders to grapple with a fluid market environment. Photographer: Bing Guan/Bloomberg
(Bloomberg) — Oil soared at the open as energy and commodity markets were thrown into a state of disarray after Western nations unleashed more sanctions to isolate Russia following its invasion of Ukraine.
West Texas Intermediate and Brent rose more than 7% in early Asian trading. The U.S. and its European allies agreed over the weekend to exclude some Russian banks from the SWIFT messaging system and target the central bank’s international reserves. BP (NYSE:BP) Plc also moved to dump its shares in Rosneft PJSC, taking a financial hit of as much as $25 billion.
Commodity and financial markets are bracing for further turmoil from the growing fallout from Russia’s invasion of Ukraine and the West’s response via sanctions. Both WTI and Brent topped $100 a barrel last week before retreating after the U.S. reiterated its decision not to sanction Russian energy exports.
Worldwide oil output is already struggling to meet the rebound in consumption fueled by the reopening of economies, and any disruptions to Russian flows will only exacerbate this. Separately, production outages in Iraq added to concerns of already-tight supplies, with OPEC+ expected to stick to its plan of only gradually increasing supply when it meets this week.
The surprise move by BP is the latest sign of how far Western powers are willing to go to punish President Vladimir Putin for his invasion of Ukraine. The oil major has been in Russia for three decades and just weeks ago was staunchly defending its presence there.
Societe Generale (OTC:SCGLY) SA and Credit Suisse (SIX:CSGN) Group AG stopped financing commodities trading from Russia, according to people familiar with the matter. The two banks, key financiers to commodity trade houses, are no longer providing the money needed to move raw materials such as metals and oil from Russia, said the people, who asked not to be named because the information is private.
OPEC+ will probably stick to its plan of only gradually increasing oil production when it meets this week to decide on targets for April, according to several delegates. Last week’s jump in prices did not reflect an imbalance between supply and demand, and the alliance should continue adding 400,000 barrels a day to the market each month.
The U.K. would support Group of Seven nations setting limits on the amount of Russian oil and gas its members could import “over time,” Foreign Secretary Liz Truss said, in a potential escalation of the impact of the war in Ukraine on energy markets. Russia’s military “is funded by revenues from oil and gas, so what we have to do is reduce dependency on oil and gas,” Truss told Sky News on Sunday.
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