Oil returns to 90s after West suspends energy sanctions

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(Bloomberg) – Oil rose in Asian trading after a wild session in which prices soared above $100 a barrel before giving up gains after Russian energy supplies were spared sanctions.

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See also: Biden steps up sanctions on Russia as West fears Kyiv’s downfall

West Texas Intermediate climbed about 3% after jumping more than 9% at one point on Thursday. Oil pared most of that lead as US President Joe Biden made it clear Western powers were unwilling to sacrifice their own savings to penalize Moscow for its invasion of Ukraine. Global benchmark Brent crude hit nearly $106 a barrel during the dramatic session.

As the United States imposed its toughest sanctions on Russia as its tanks and troops closed in on the Ukrainian capital, it said restrictions on currency clearing would include exclusions for energy payments, a crucial source of income for Moscow. Biden also said Russia would not be kicked out of the Swift International Banking Network because Europe opposed the action.

“Initial fears that oil could be caught up in sanctions against Russia have eased, leading prices to pull back from yesterday’s rally,” said Daniel Hynes, senior commodities strategist at Australia & New. Zealand Banking Group Ltd. offered for Russian crude are still not receiving offers. This suggests that there could still be supply issues if banks cannot facilitate short-term trade.

Russia’s invasion of Ukraine spooked a global oil market that was already dangerously stretched due to the inability of supply to keep up with the post-pandemic recovery in demand. Biden said the United States was working with other major consumer nations on a coordinated release of reserves. However, such sales would have to be very large to have a major impact on prices.

Japan and Australia have signaled they could be part of a release of international reserves, but China has said it has no immediate plans to intervene in oil markets. A Beijing spokesman said he would only consider such a move when the geopolitical situation stabilized.

Brent crude is still deep behind even after the West failed to sanction Russian energy, underscoring investor jitters over the tight supply situation. The rapid deviation from the global benchmark was $3.60 a barrel in backwardation versus $1.82 two weeks ago. WTI’s discount to Brent, meanwhile, hit its highest level since April 2020, perhaps prompting traders to explore arbitrage opportunities.

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