Get Set For $130 Oil, Say Experts As Russian Invasion Of Ukraine Begins

Analysts also question the effectiveness of further SPR releases in U.S.: File Image/Pixabay

What the West is calling an all-out invasion of Ukraine by Russia - and a "special operation" by Russia - had a predictable effect on oil trading Thursday: early in the session the commodity surged above $105 per barrel for the first time since 2014, with Brent jumping more than 9 percent – and analysts predicted even higher gains in the near future.

Prices eased later in the session when U.S. president Joe Biden said his country is working with other countries on a combined release of additional oil from global strategic crude reserves.

So far, the United States has released about 50 million barrels of oil from its Strategic Petroleum Reserve (SPR) through sales and exchanges to negligible effect, and the prospect of more releases caused Phil Flynn, senior market analyst at Price Futures Group Inc., to remark that the news is "having a psychological impact, but whether there is a real impact will take a few weeks to determine."

As for the announcement by the U.S., the UK, and Germany of sanctions against Russia (which observers say will kindle the former Soviet Union's urge to retaliate in kind), Giovanni Staunovo, commodity analyst at UBS Group, pointed out that Russia is the third-largest oil producer and second-largest oil exporter, and that "Given low inventories and dwindling spare capacity, the oil market cannot afford large supply disruptions."

For the record, crude in the U.S. SPR fell 2.4 million barrels to 582.4 million barrels last week, its lowest since 2002 according to government data.

Even though oil poised at breaking the $100 threshold worries analysts who argue the high prices will merely exacerbate inflation, Rystad Energy stated in a note that the Russian invasion could propel prices even higher, to $130 per barrel.

Still, there are upsides to any conflict, and Bloomberg on Thursday reported that oil's rally has energized the options market with a total of about 75 million barrels worth of call options at $100 for May, as well as $95 and $100 for June: "Those contracts have surged in value as they would now mostly pay out at expiry with outright prices up between $7 and $8 on the day; there are also about 12 million barrels of April WTI $100 calls."

As for Thursday's trading settlements, West Texas Intermediate rose 71 cents, or 0.8 percent, to settle at $92.81 per barrel, after earlier rising to $100.54; Brent rose $2.24, or 2.3 percent, to settle at $99.08 per barrel, after touching a high of $105.79.