ICE Brent, NYMEX WTI crude surges more than 5% as Russia launches military operations in Ukraine

Front-month ICE Brent and NYMEX WTI crude oil futures surged more than 5% Feb. 24 during Asia trading hours after Russia launched military operations in Ukraine.

The April ICE Brent futures contract hit an intra-day high of $100/b in late morning trade before quickly rising to $101/b. At 12:30 pm Singapore time (0430 GMT), the ICE April Brent futures contract was up $5/b (5.16%) from the previous close to $101.84/b, while the NYMEX WTI April light sweet crude contract rose $4.74/b (5.15%) to $96.84/b.

Russian President Vladimir Putin announced a "military operation" in Ukraine's Donbas region in a televised speech Feb. 24, according to the BBC. Multiple explosions were heard in the capital Kyiv and elsewhere in Ukraine, the BBC said.

Ukrainian foreign minister Dmytro Kuleba called the operations a full-scale invasion. "Putin has launched a full-scale invasion of Ukraine," the minister was cited as saying by the BBC.

NATO Secretary General Jens Stoltenberg in a press statement Feb. 24 said: "This is a grave breach of international law, and a serious threat to Euro-Atlantic security. I call on Russia to cease its military action immediately and respect Ukraine's sovereignty and territorial integrity. NATO Allies will meet to address the consequences of Russia's aggressive actions. We stand with the people of Ukraine at this terrible time. NATO will do all it takes to protect and defend all Allies."

ICE Brent crude last touched the $100/b mark on Sept. 9, 2014.

"$100/b is just a landmark. If Russia does mount a full-scale invasion, it will blow the roof off oil prices," said Vandana Hari, CEO of Vanda Insights.

IG DailyFX strategist Margaret Yang said in a note early Feb. 24: "Oil traders are vigilant about a potential escalation in the conflicts that may lead to restrictions on Russia's oil exports, adding supply constraints in an already tight market ... If the Ukraine crisis deepens further, it may spiral into an energy crisis and push oil and gas prices higher."

US President Joe Biden called the Russian operation an "unprovoked and unjustified attack by Russian military forces."

"President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering," the BBC cited him as saying.

Biden said he will be monitoring the situation from the White House and will meet with G7 leaders in the morning before announcing "further consequences" for Russia.

He said there will be a "strong, united response" from Nato allies that deters any aggression against its members, the BBC reported.

Sanctions

The UK, US and European Union have imposed an initial tranche of sanctions on some Russian banks and high net worth individuals, and curbed Moscow's access to capital markets in these countries, after Putin ordered troops into eastern Ukraine and recognized two breakaway regions earlier in the week.

The US treasury department imposed restrictions on Russian sovereign debt and sanctions against the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries.

The five banks targeted by the UK include Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank, and the three "high net worth" individuals sanctioned by the UK are Gennady Timchenko, Boris Rotenberg and Igor Rotenberg.

Japan decided to impose sanctions in response to Moscow's moves, Prime Minister Fumio Kishida told reporters Feb. 23. It will suspend visas and issuance of visas and freeze assets of individuals associated with the separatist regions and impose a trade embargo with the separatist regions, Kishida said.

The country will also ban issuance and distribution of sovereign bonds by the Russian government in Japan, he said, adding that the country will decide details for a speedy implementation.

The most notable energy-related sanctions so far has been on the vital Nord Stream 2 gas pipeline that was expected to start in 2022 carrying Russian gas to Germany.

On Feb. 23, the US imposed sanctions on Nord Stream 2 AG, the company that built Russia's 55 Bcm/year gas pipeline, and its corporate officers, a day after Germany halted certification of the project. German Chancellor Olaf Scholz said Feb. 22 that the Nord Stream 2 gas pipeline from Russia could no longer be certified after Moscow's recognition of the breakaway regions in Ukraine.

S&P Global Platts Analytics has removed Nord Stream 2, previously assumed to start-up in October 2022 from its outlook, and reduced assumed Russian gas flows by 47 million cu m/d in the winter of 2022. It said because of this, global gas price forecasts (TTF, JKM) are being revised higher, with reverberations across the wider commodity complex, including power, coal and oil for the winter of 2022.

"Most of that volume will have to be replaced by LNG on the back of demand switching and destruction in Asia. In Europe, we will also need to see continued fuel switching in power and refining, with coal generation capacity returning and having its lifespan extended, along with the ongoing prioritization of gas over oil exports in Norway, which will all require higher gas prices," according to Platts Analytics.