Sonali Paul

MELBOURNE/BEIJING – Wednesday’s oil prices surged as traders scrambled for alternative sources of oil in a tight market.

Futures rose $8, reaching $113.02/barrel, which was the highest price since June 2014 before falling to $111.75 by 0804 GMT.

U.S. West Texas Intermediate oil futures increased $7.24 (or 7%) to $110.67/barrel after reaching their highest point since August 2013.

Data back to 2004 shows that Brent futures contracts have experienced the greatest backwardation. This is the situation where prompt prices outstrip later-dated supply. From $18.55 per barrel to an additional premium in Brent’s first-month future, it rose as high as $18.55 per barrel.

Justin Smirk, Westpac economist, stated that “trade disruptions are beginning to attract people’s attention.”

Trade finance and insurance issues are all having an impact on exports from Black Sea. He said that the supply shocks were unfolding.

Russian oil exports make up around 8% global supply.

Exxon Mobil (NYSE:) Tuesday’s announcement by the company that it will be closing Russia’s oil and gas operations in response to Moscow’s invasion of Ukraine was made on Tuesday. It will be leaving the management of large production sites on Sakhalin Island (Russia’s Far East) as a result.

While the West has not placed sanctions directly on oil exports, U.S. traders in New York City and the U.S. Gulf have been avoiding Russian crude.

U.S. President Joe Biden warned Vladimir Putin that the Russian leader “has no idea what’s coming” in a State of the Union speech dominated by Russia’s invasion of Ukraine.

Russian barrels aren’t being touched by people. While you might see some of them in the sea, the fact is that they were already purchased prior to the invasion. One New York Harbor trader said that there won’t be many after that.”

Bharat Petroleum Corporation, a state-run refiner in India is looking for extra oil from Middle Eastern producers to meet its April production targets. This comes amid fears that Western sanctions could affect Russian crude deliveries.

Saudi Arabia, a top oil exporter, may raise crude prices for Asia in April. Trade sources say that differentials for all grades of crude will reach new highs due to tightening global supply and financing issues.

Although 60 million barrels were released by member nations of the International Energy Agency on Tuesday, it did not stop market gains. Analysts said however that it would provide only temporary relief to the supply side.

Smirk stated that while they helped curb the rising prices, if you are looking to reverse them, there is a better way.

According to the IEA, commercial oil stocks are at their lowest level since 2014.

Against such a backdrop, the Organization of the Petroleum Exporting Countries and Russia, also known collectively as OPEC+ are set to meet on Wednesday. There they will likely stick to their plan to increase supply by 400,000 barrels daily.

The latest data released by the American Petroleum Institute showed that inventories decreased by 6.1 Million barrels during the week ending February 25th. This is a sign of tightness on the market.

On Wednesday, the U.S. Energy Information Administration will release its weekly data. Reuters polled analysts expecting a crude inventory increase of 2.7 Million barrels.