Crude oil gains over 7% to reach 7-year high

Highlights

• Crude oil prices rose on Tuesday to reach fresh seven-year high.
• Members of the International Energy Agency (IEA) agreed to release 60 million barrels of crude oil.
• Traders are avoiding trading Russian barrels despite the US-led sanctions exempted Russia’s energy sector

Crude oil prices surged more than 7% on Tuesday to record the fresh seven-year highs as the global agreement to release crude oil from strategic reserves failed to calm fears of supply disruptions arising from the Russia-Ukraine war.

The prices of both oil benchmarks rose on Monday too after the Western allies including the US and European Union imposed more sanctions on Russian banks, blocking SWIFTS international payment system. SWIFTS is a global payment system that facilitates rapid cross-border payments, making a smooth international trade flow.

Must Read: Crude oil rises on fresh Russia-Ukraine war warnings

For the release of crude oil from strategic reserves, members of the International Energy Agency (IEA) agreed to release 60 million barrels of crude oil, not enough to fulfill the one-day worldwide consumption.

On Tuesday, the prices of Brent Crude oil settled at US$104.97/bbl after rising more than 7% while WTI crude rose 8% to settle at US$103.42/bbl, the biggest percentage gain since November 2020.

The prices rose further on Wednesday. May delivery Brent Crude oil futures last traded at US$110.28 per barrel up 2.85%, whereas April delivery WTI crude oil futures traded 5.31% up at US$108.90 per barrel as of 02 March 2022 at 12:59 PM AEDT.

Must Read: Crude oil hits fresh seven-year high amid Russia-Ukraine tension

Traders avoiding Russian oil

Though US-led sanctions on Russia exempted the country's energy sector traders are avoiding trading Russian barrels, leading to a staggering discount on that oil and tightening other types of crude.

Russia is facing serious troubles in its exports ranging from oil to grains after Western allies imposed stiff sanctions on it and blocked several banks from the SWIFT payment system.

Good Read: How a Russian invasion of Ukraine might impact crude oil prices

In a retaliative move, Russia could suspend European energy supplies. Additionally, Russian forces also seized two small cities in the south-eastern part of Ukraine.

Moreover, major oil companies including BP and Shell have already announced their exit from Russia, as a part of the West's campaign to isolate Russia's economy. TotalEnergies SA also decided not to invest further capital in its Russian operations.

The ongoing crisis between both nations has brought volatility in the energy market as Russia is the third-largest producer of crude oil in the world.

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Furthermore, OPEC+ has not signaled a desire to boost production beyond their expected 400,000bpd increase in April.

Also Read: WTI Crude surpasses US$90/bbl as frigid weather cascades across the US

Bottom Line

Crude oil prices surged nearly 7% on Tuesday to reach a level not seen in the last seven years. The staggering rise in the prices has been witnessed as the global agreement to release crude oil from strategic reserves failed to calm fears of supply disruptions.