The cost of oil surged on Wednesday, as traders snapped up non-Russian oil, increasing the chance of further price rises at UK forecourts.
Brent crude – the global benchmark for oil prices – passed $113 a barrel, its highest level since June 2014.
Traders are struggling to sell Russian oil, even at a discount, because of the new difficulties in shipping and payments amid its invasion of Ukraine.
Gas prices also doubled, which could feed through to energy bills.
Almost 70% of Russian crude oil exports do not have a buyer according to UK-based research consultancy, Energy Aspects.
On Tuesday, oil trader Trafigura offered a cargo load of Russian crude oil at a record discount of $18.60 per barrel below the market rate for Brent, but could not find a buyer willing to take the risk.
Amrita Sen, its founding partner told the BBC World Service that buyers are concerned that they could run afoul of Western sanctions and “lawyers are poring through the language” of the new rules.
The RAC said if the higher oil price is sustained, the cost of filling up a car in the UK will increase with it.
“The sudden $10 jump in the oil price is likely to take the average price of petrol towards 155p a litre and diesel to 160p, particularly as it’s looking like this price isn’t just a market blip caused by the US and allies deciding to dip into the strategic oil reserve.
“If oil does stay at this level, the journey to an average unleaded price of 155p may be far too quick.” said RAC fuel spokesperson Simon Williams.
The average price of petrol across UK forecourts on Tuesday was 151.6p per litre, according to the RAC.
Both Brent crude and WTI crude are trading more than 8% higher today, boosted in part by demand for
Energy price cap
Household gas and electricity bills are set to rise after the annual energy price cap increases to £1,971 in April, but the rise in wholesale prices amid the war in Ukraine may mean the price cap ratchets up to £3,000 by the end of the year, according to one energy analyst.
“Wholesale prices make up between 40-50% of household bills,” said independent energy analyst David Cox. “If these high prices stay around 400p per therm we may see the price cap head closer to £3,000 per year, which is terrifying.”
Energy analysts at Cornwall Insights also predicted a jump in the energy price cap in October, based on turmoil in the European wholesale gas prices, to over £2,900.
Higher oil and commodity prices helped the London stock market to buck the downward trend in global markets, with commodity-linked company share prices surging as the Ukraine crisis fanned fears about supply shortages.
The FTSE 100 rose 0.6%, boosted by Shell and BP shares, up 4.7% and 4.2%, respectively.
On Wall Street, the Dow Jones, Nasdaq and S&P 500 indexes all opened trading higher, up by between 0.7% and 0.9% respectively.
Meanwhile, the price of US oil – West Texas Intermediate crude – rose to almost $109.78 a barrel.
Oil and gas is still flowing from Russia – but there’s deep concern that situation may change – either because of a further tightening of sanctions, or because Russia itself decides to restrict supplies. So prices are rising.
The decision by International Energy Agency members to release 60m barrels of emergency oil reserves has done little to calm the situation. If anything, comments by the head of the agency that global energy security is under threat have made traders even more nervous.
Meanwhile wholesale gas prices in the UK and Europe have moved perilously close to the record levels seen in December. Europe gets 40% of its gas from Russia and there are deep concerns about what would happen if those supplies were choked off.
At the moment, the high prices are working in Russia’s favour – it’s making billions at a time when it’s economy is being squeezed. While that makes it unlikely Moscow will cut supplies, nothing can be ruled out.
If European nations were to clamp down on oil or gas imports, meanwhile, the impact of its sanctions would be magnified dramatically. But it would also cause serious economic pain for those countries themselves.
The IEA member countries, led by the United States, yesterday agreed to release 60 million barrels of emergency stockpiles, but it appeared to have had a limited effect on pricing.
Selling the emergency oil reserves is not sufficient to meet the supply shortfall caused by Russia’s invasion of Ukraine or prevent prices from going higher, analysts at Goldman Sachs said.
AJ Bell investment director Russ Mould said the move would not “make any sustained difference” to prices.
“Russia controls a sixth of the world’s gas and a tenth of its oil. Those figures dwarf the 60 million barrels and industrial buyers, or financial speculators, will be focusing on those numbers and where that supply goes.
“The West is still buying Russian supply and Russia is still providing it but that could conceivably change as relations deteriorate further,” Mr Mould added.
Russian oil exports account for about 8% of global supply.
The Organization of the Petroleum Exporting Countries (OPEC), Russia and allies, a group known as known as OPEC+, met and agreed on Wednesday to stick to their ongoing policy of increasing supply by 400,000 barrels per day in April.
ExxonMobil on Tuesday said it would sell out its stakes in Russian oil and gas operations as a result of Moscow’s invasion of Ukraine. Shell and BP have also made similar announcements.