The price of oil has shown a remarkable increase nowadays. On February 12, Brent Oil and West Texas Intermediary oil had increased about 4-5 percent in a day. Brent Oil reached out to 95 dollars, while West Texas Intermediate reached out 93 dollars in the same minutes. With this increase, the oil price has come up to the top level since 2014. In this article, we'll touch upon that increase and its latest reason: The threat of Russia to invade Ukraine.
The explanations coming from Europe and the USA about the tension being on the border of Ukraine and Russia support the increase in oil prices. Therefore, it's s worth looking at these explanations one by one.
England has desired its citizens being present inside Ukraine to leave the country as soon as possible or its citizens to not travel to Ukraine. This is because England remarked that Russia's army banking up in the Ukraine and Russia border is most likely to increase the threat of military action. Besides that, the European Union called its workers to leave out Ukraine.
The US President Joe Biden's national security adviser, Jack Sullivan, pointed out that "As we've said before, we are in the window when an invasion could begin at any time should Vladimir Putin decide to order it. I will not comment on the details of our intelligence information. But I do want to be clear: It could begin during the Olympics, despite a lot of speculation that it would only happen after the Olympics." What Sullivan means from this expression is that Russia is ready to invade Ukraine even before what they expect or the world expects. This increases uncertainty. Then, therefore, he called Americans in Ukraine to immediately leave the country; otherwise, they won't do any evacuation operation if the invasion occurred.
Another concern is that when Russia enters Ukraine, whether the supply of oil to Europe by Russia will continue or stop. If Russia cut giving oil to Europe, how European businesses continue to operate is curiosity. In this case, it may be that the USA will be the country that satisfies the need of Europe for oil.
An experienced specialist David Roche foresaw that if Russia attacks Kyiv and the war between these two countries starts, the price of petroleum will climb to 120 dollars per barrel. Another prediction about the price of oil comes from JP Morgan. Oil prices could rise to 120 dollars per barrel due to the tension between Russia and Ukraine. "Any disruptions to oil flows from Russia in a context of low spare capacity in other regions could easily send oil prices to $120," Natasha Kaneva, JP Morgan's head of global commodities strategy. JP Morgan also warns that if Russia decides to cut its supply by half, the oil price could easily hike to 150 dollars per barrel, which will be the all-time high for the oil price, breaking the record of 147 dollars per barrel in the crisis at 2008. When it is looked at the role, Russia has in OPEC+ and its presence as a second the most producer of oil, any potential cut of oil by Russia can pose a detrimental and shock increase in oil prices. Any war will certainly cause the energy infrastructure to get damaged, which getting difficult to supply oil. Also, sanctions that will come from Western power, about the energy importing, in reply to the attack of Russia, should be considered as upward pressure on oil prices.
In a report, economists including Joseph Lupton and Bruce Kasman warned that such a shock would be enough to reduce global growth by more than three quarters, to around 0.9 percent in the first half of the year — versus the 4.1 percent, they currently forecast, according to a news published by Financial Post.
There is also one aspect of the issue: soaring inflation. The energy category was the most-weighted item in Consumer Price Index. If the prediction of JP Morgan and others about the price of oil comes true, then inflation will increase, and it will put pressure on central banks in deciding the level of interest rate, maybe about increasing the rate more harshly.
Also, note that even though the recovery in the oil demand has continued, the expectation of the supply of petroleum to much tighten bolsters up the price of oil.