Crude oil futures edges higher as Ukraine invasion exacerbates supply constraints

Crude oil futures edged higher in mid-afternoon Asian trade Feb. 25 as investors assess the impact of trade sanctions on Russia after it invaded Ukraine, raising tight supply concerns even as the US works on a release of global strategic crude reserves.

At 3:30 pm Singapore time (0730 GMT), the ICE April Brent futures contract was up $2.37/b (2.39%) from the previous close at $101.45/b, while the NYMEX April light sweet crude contract rose $1.80/b (1.94%) to $94.82/b.

Crude futures settled below the $100/b mark on Feb. 24, having hit an intraday high of $105.79/b, the highest level since August 2014, after US President Joe Biden said there are currently no plans to target Russia's energy complex with sanctions.

"Oil's spike this week has underscored how sensitive markets are to the thought of any exacerbation of supply-side constraints," Han Tan, Exinity's chief market analyst told S&P Global Platts.

Factbox: Crude prices climb as Russia 'invades' Ukraine

The US and Europe promised more sanctions aimed at punishing Russia's economic and financial sectors, while the UK unveiled penalties, including freezing of assets on major banks.

Supply chains of crude oil are still able to perform telegraphic transfers through international payments network SWIFT (the Society for Worldwide Interbank Financial Telecommunication), except for the financing of Russian deals, analysts said.

Meanwhile, the Biden administration said Feb. 24 that the US is working with major crude consuming nations to coordinate a combined release of additional oil from global strategic crude reserves.

"Considering that the global demand recovery remains robust amid tightening market structures, the sharpened focus on supply-side risks, either by way of sanctions imposed on Russia or progress of the Iran [nuclear] deal, should dictate the near-term performance of oil prices," Exinity's Tan said.

US crude oil stocks rose 4.51 million barrels to 416.02 million barrels in the week ended Feb. 18, US Energy Information Administration data showed Feb. 24, against analysts' expectations of a 300,000-barrel draw, S&P Global Platts reported earlier.

The counter-seasonal build put crude oil stocks in the US at around 9.2% behind the five-year average for this time of year, from 10.5% the week prior. However, crude oil stocks still remain more than 4 million barrels below their recent five-year range.

"With the US consumer facing high gasoline prices…the options available for politicians to clamor for affordable oil prices may be limited," said Avtar Sandu, senior manager of commodities at Phillip Nova, in a Feb. 25 note.

"Iranian additional barrels may still be a distant solution for lower prices," he added.