Oil, natural gas and agricultural prices rose as escalating tensions over the future of Ukraine threatened to disrupt flows of natural resources from Eastern Europe to world markets.
Futures for Brent crude, the benchmark in international energy markets, added 3.4% to reach $98.65 a barrel and earlier climbed to $99.50 a barrel, their highest level since 2014. In Europe, which buys much of its natural gas from Russia, the price of the heating and power-generation fuel rose 6% to €76.90 ($87.14) a megawatt-hour.
U.S. natural-gas prices also rose Tuesday, though the move was less pronounced than in Europe. Futures gained 3.2% to $4.57 per million British thermal units.
Prices for aluminum, nickel and wheat, all produced in large quantities in Russia or Ukraine, rose too.
Price of Brent-crude futures this yearSource: FactSetAs of Feb. 22, 7:16 a.m. ETJan. 2022Feb.7580859095$100a barrel
The advance in global commodity markets came as the U.S. prepared to hit Moscow with sanctions over Russian President Vladimir Putin’s order for troops to enter two breakaway regions of Ukraine. The White House condemned Mr. Putin’s decision to recognize the independence of Donetsk and Luhansk. Western governments have said a full-scale invasion of Ukraine could be imminent.
In deciding which restrictions to impose on Russia, and when, the West faces a tricky balancing act. Hitting the sector that would do most damage to the Russian economy—oil and gas—would also cause the biggest problems in the U.S. and Europe. Companies, governments and voters there already are grappling with the highest energy prices in years.
Natural-gas markets are highly exposed to any snags in flows from Russia. Europe met 38% of its gas needs with imports from Russia in 2020, according to the most recent official data. Prices in northwest Europe are almost five times as high as they were a year ago, in part because state energy supplier Gazprom PJSC OGZPY -4.98% has throttled exports in recent months.
On Tuesday, Mr. Putin told a gas conference that the country will continue to provide uninterrupted supplies of gas, according to a state news agency.
Traders, analysts and lawyers say the first round of sanctions imposed in response to an invasion would likely avoid measures that directly disrupt Russian oil and gas exports. Nonetheless, they say sanctions could reverberate through the Russian economy and commodity markets in unpredictable ways, for example by making it difficult for traders to finance and pay for cargoes of Russian fuel.
Crude prices have rallied to their highest prices since the 2014 shale-induced crash after demand snapped back from pandemic lows faster than production. As producers in the Organization of the Petroleum Exporting Countries, the U.S. and Russia itself either struggled to pump more oil or opted for restraint, stockpiles have winnowed.
“I don’t think a full export ban is going to be imposed,” said Tamas Varga, an analyst at brokerage PVM Oil, citing high gasoline prices and the upcoming midterm elections in the U.S. “The more important question is: How is Russia going to react? There is nothing that could prevent them to limit supplies to Europe or anywhere else in the world.”
A map of the Nord Stream 2 pipeline from Russia to Germany in Lubmin, Germany.
PHOTO:STEFAN SAUER/ASSOCIATED PRESS
There is also a risk of physical disruption to Russian oil supplies to Europe. Eastern and central European refiners rely on Urals crude—the main grade of crude exported by Russia—flowing through the southern branch of the Druzhba pipeline, which runs through Ukraine to Slovakia, Hungary and the Czech Republic. In all, Europe imports 2.7 million barrels per day of Russian crude, and 1.1 million barrels a day of refined products, according to S&P Global Platts.
Russia is the third-biggest oil producer in the world, the single biggest exporter of natural gas and a major producer of aluminum, nickel and other metals. Any interruption to Russian exports would strike at a vulnerable time for oil, gas and metal markets globally.