Oil prices jumped 5% in late trade due to disruptions to Russian and Kazakh crude exports passing through the Caspian Pipeline Consortium (CPC). This adds to concerns over tight global supply.
Wednesday (23/3), the price of Brent crude oil for delivery in May 2022 closed up US$ 6.12 or 5.3% to US$ 121.60 per barrel.
Similarly, the price of West Texas Intermediate (WTI) crude oil futures for May 2022 delivery jumped US$ 5.66 or 5.2% to US$ 114.93 per barrel.
The oil benchmark has continued to strengthen since Russia invaded Ukraine last month, in what it called a "special operation". This made the United States (US) and its allies impose severe sanctions against the country, and disrupt world oil trade.
The situation added to market concerns about the ripple effect of tough sanctions against Russia, following the invasion of Ukraine.
The CPC pipeline is a significant supply line for global markets, carrying around 1.2 million barrels per day of Kazakhstan's premier crude grade, or 1.2% of global demand.
Russia exports between 4 million and 5 million barrels of crude oil daily, making it the world's second largest exporter after Saudi Arabia. Analysts have varying estimates of how much oil may not reach the market.
"There is a growing consensus that the de facto ban on buying Russian oil has resulted in supply disruptions of 2 million to 3 million barrels per day, and until the world can find a way to replace that oil, we will climb higher until the demand crushing occurs," Andrew said. Lipow, President of Lipow Oil Associates in Houston.
Crude oil exports from Kazakhstan's CPC terminal on Russia's Black Sea coast came to a complete halt on Wednesday after damage caused by a major storm and continued bad weather, a port ship agent and CPC chief said.
Russian Deputy Prime Minister Alexander Novak later said that oil supplies by the CPC might actually be cut off for up to two months.
On the other hand, US President Joe Biden will announce more Russian sanctions when he meets European leaders on Thursday in Brussels, including an emergency NATO meeting.
EU member states remain divided over whether to ban imports of Russian crude and petroleum products after Canada and the United States said they would ban imports from Russia, and Britain said it would reduce those purchases.
"If there is any hope that the war will lessen, that is not true," said Claudio Galimberti, senior vice president of analysis at Rystad Energy. "You can expect further tightening in the market."
U.S. crude stockpiles fell 2.5 million barrels last week, according to government data, compared with expectations for modest gains. Crude production remained flat at 11.6 million bpd for the seventh week in a row. Manufacturers in the United States have been encouraged to drill, but production has been slow to respond.
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