Oil Breaches $95 As Analysts Worry About High Prices Stalling Economic Growth

Meanwhile, Russia invasion of Ukraine could happen this Wednesday: File Image/Pixabay

With high global demand and low inventories making the oil market especially vulnerable to tensions such as the Russia/Ukraine conflict, expectations of the former Soviet Union launching an invasion this week caused crude on Monday to breach the $95 threshold, for the first time since 2014.

West Texas Intermediate rose $2.36 to settle at $95.46 per barrel, while Brent rose $2.04 to $96.48 per barrel.

Russia's foreign minister said he would propose to continue diplomatic engagements with the West, but many sources – including Ukraine officials – believe an invasion will occur this week, possibly Wednesday.

Scott Shelton, energy specialist at ICAP, remarked, "With a lack of clarity on the effect on oil and incredibly low inventories, the market is definitely worried here and buying."

With prices reaching $100 in the near future a distinct possibility, such a climb by the end of this month would lift inflation by about half a percentage point in the U.S. and Europe in the second half of the year, according to Bloomberg Economics' Shok model.

JPMorgan Chase & Co. warned of an even worse scenario: that a run-up to $150 per barrel (also within the realm of possibilities) would almost stall the global expansion and send inflation spiralling to over 7 percent.

Priyanka Kishore, head of India and South East Asia, macro and investor services at
Oxford Economics Ltd., said, "A continued rapid rise can raise risks of recession-like conditions in some countries, especially if fiscal policy is also tightening notably.

"Hopefully this is not the straw that breaks the camel's back."

The Russia/Ukraine conflict is causing another issue: traders and buyers of Asia's oil grades from Russia, particularly ESPO and Sokol, are reportedly becoming fearful of being snagged in possible trade restrictions should Russia be sanctioned.

Crude from Saudi Arabia and Abu Dhabi will be the possible beneficiaries should Asia shun Sokol and ESPO, traders said.

But Ed Morse, global head of commodities research at Citi, said that even if Russia invaded Ukraine and oil skyrocketed past $100, it would not sway his organization's resolve that the commodity is headed for bear territory.

He told media it is highly unlikely that crude trade between Russia and Europe would stop, and that bearish signs including enormous production on a global scale will remain intact.