Oil and natural gas prices fall as sanctions threaten Russia’s commodity exports

Oil, natural gas and grain prices surged as sanctions on Russia over the weekend threatened to stifle the resource-rich nation’s commodity exports.

Brent crude futures, the benchmark in international oil markets, rose 4.9% to $98.73 a barrel in London on Monday. Previously, Brent had hit $101.28 a barrel. Natural gas prices jumped 15% in Europe, where the countries’ dependence on Russian gas was highlighted. US gas prices rose 3.4% to $4.64 per million British thermal units.

The rise in energy prices came as Western sanctions, designed to decouple Russia from the global financial system, caused turmoil in its domestic markets. The country’s central bank has more than doubled its interest rates in a bid to stem the ruble’s slide. BP PLC and Equinor of Norway LIKE

A, meanwhile, said he would abandon his investments in Russia’s energy industry.

European Union energy ministers were due to meet in Brussels on Monday to discuss measures to maintain energy supplies as war rages on the bloc’s eastern flank. Kadri Simson, the EU’s top energy official, said she would also ask ministers to approve an emergency synchronization of Ukraine’s and Europe’s power grids to ensure access to electricity in those who live in the war zone. The Biden administration is considering a release of the U.S. Strategic Petroleum Reserve to help drivers spare the impact of rising gas prices from any cuts in Russian oil exports.

Wheat and aluminum prices, both bought in large quantities in Russia or Ukraine, also increased. Chicago wheat futures rose 4.7% to $9 a bushel. Aluminum futures gained 2.3% to $3,460 per metric ton in London. The metal, used in automobiles, planes and other industries, was in short supply even before Russian President Vladimir Putin ordered the attack on Ukraine last week.

The fallout from the move has raised questions about Russia’s reliability as a massive supplier to oil and gas consumers around the world. Russia is the largest gas exporter and a major supplier of crude, refined products and other resources, including to the United States. Revenue from energy sales abroad is essential to financing the Russian state, including its war machine.

Much of the gas that Europe imports from Russia transits through Ukraine. So far there has been no disruption to that supply, although a fuel depot in the town of Vasylkiv, south of the capital, caught fire after being hit over the weekend.

“Pray that physical flows don’t go down,” a major gas trader in Europe said Monday morning.

So far, the sanctions have spared energy exports. US and European leaders worry about voters returning if the war leads to soaring transportation and heating bills. Restrictions on the Russian economy have intensified faster than expected in the energy industry, hitting, among other targets, the still unused Nord Stream 2 gas pipeline linking Russia to Germany. Traders fear new sanctions could directly limit Russian oil and gas shipments or the ability to fund and pay for them.

A burning oil depot was reportedly hit by shelling near a military air base in Ukraine on Sunday.



Russian crude oil and fuel oil are sent to refiners in Eastern Europe, the Mediterranean and the US Gulf Coast to produce gasoline and diesel. Some cargo sold from Russia’s Black Sea port of Novorossiysk last week is still arriving in northwestern Europe and the Mediterranean, a trader said. But the trader said no shipments were planned from early March due to the risk of sanctions and military strikes in the Black Sea.

Another danger to energy supplies, analysts say, is that Mr Putin could seek to inflict massive damage on Europe’s economy and people by turning off the gas taps. The Russian state holds a majority stake in Gazprom PJSC,

main gas supplier in the region and a dominant stake in oil giant Rosneft Oil Co.

“It’s going to be extremely volatile,” said Thierry Bros, gas analyst and professor at Sciences Po Paris. “Vladimir Putin could at any time decide to reduce the offer.”

Russia’s attack on Ukraine helped push the price of oil above $100 a barrel for the first time since 2014. Here’s how rising oil prices could further boost inflation in the American economy. Photo illustration: Todd Johnson

For oil markets, a key dynamic will be the response to the conflict by the Organization of the Petroleum Exporting Countries. Russia led an allied group of energy producers that coordinated with OPEC to limit production and then gradually bring barrels back to market as demand recovered after the Covid-19 shutdowns. Analysts expect the combined group, known as OPEC+, to press ahead with those plans at a meeting on Wednesday.

A powerful series of sanctions imposed by the United States and its allies over the weekend included an agreement to eject some of the Russian banks from the global financial system’s payments infrastructure, Swift. By removing only some banks, Western countries are allowing payments, including for energy, to continue through unsanctioned banks.

However, Mr Bros expects Russia to be completely cut off from Swift in the next round of sanctions. “We won’t be able to pay, in which case Russia won’t send us gas,” he said.

Some analysts say Russia’s Swift start would cause near-term turmoil in energy markets, but traders and brokers will find workarounds. “The history of Iranian sanctions makes it clear that this is not a game stopper,” said Christof Rühl, senior fellow at Columbia University’s Center on Global Energy Policy.

For now, European companies continue to buy Russian gas in large quantities. Over the weekend, pipelines crossing Ukraine transported this fuel almost at capacity. More than 80 million cubic meters of gas entered the EU on Sunday at the border with Slovakia, according to the Slovak pipeline operator. A similar volume was booked to enter Slovakia on Monday at a border town called Veľké Kapušany.

Oil and natural gas prices fall as sanctions threaten Russia's commodity exports

US and European leaders worry about voters returning if the war leads to soaring transportation and heating bills.


Luke Sharrett/Bloomberg News

Write to Joe Wallace at Joe.Wallace@wsj.com

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