Oil could spike above $130 amid the Russia-Ukraine invasion

Published Fri, Feb 25 20229:28 AM EST

Prices across the energy complex surged on Thursday after Russia officially invaded Ukraine, prompting fears that supply disruptions could strain markets that are already in tight supply. Oil topped $100 per barrel for the first time since 2014, while European natural gas futures spiked more than 50%. Analysts say prices are likely to keep climbing — at least for the time being. "Oil prices are soaring with no end in sight," said Louise Dickson, senior oil market analyst at Rystad Energy. "Prices could approach $130 per barrel by June if the Ukrainian conflict disrupts Russian crude flows, but that estimate could soar higher if additional disruptions materialize." Oil prices retreated from those highs after President Joe Biden on Thursday declined to implement sanctions on Russia's energy complex. U.S. West Texas Intermediate crude futures ended the Thursday's session 71 cents, or 0.77%, higher at $92.81 per barrel. At one point the contract climbed over 9% to trade as high as $100.54, a price last seen in July 2014. During a volatile session WTI also traded in negative territory at one point. WTI traded 0.8% higher around $93 per barrel on Friday. Brent crude futures rose more than 8% at one point to hit a session high of $105.79 per barrel, the highest level since August 2014, before ending the day at $99.08 per barrel for a gain of 2.3%. On Friday, Brent climbed 0.1% to $99.16. While the U.S. and Western allies haven't imposed direct sanctions on Russia's energy markets, there's still the chance that President Vladimir Putin will retaliate by turning off the taps and weaponizing energy. The country has been a reliable supplier in the past, including during the Cold War. Russia and Europe have a co-dependent relationship when it comes to energy — Russia needs the money, while Europe needs the fuel. Russia supplies around one-third of Europe's natural gas. Germany is the most dependent on Russia for fuel, and the two countries had previously been working on the Nord Stream 2 pipeline. Ed Moya, senior market analyst at Oanda, sees WTI trading between $90 and $120 over the next few weeks. "The oil market still remains very tight and will likely see wild swings as energy traders await outcomes for both Russian and Iranian crude supplies," he said. While tensions between Russia and Ukraine escalated, traders have also been keeping tabs on progress on the Iran nuclear deal. This could bring oil back to the market immediately. By some estimates, the nation has more than 80 million barrels of crude in floating storage. With so many unknowns, JPMorgan laid out possible outcomes for the various situations that are on the table. Should Russian exports decline, the firm sees Brent averaging $115 barrel during the second quarter, $105 per barrel in the third quarter, and $95 per barrel during the fourth quarter. But the firm's base case is that even with escalation from Russia there will also be an Iran deal, which will partially offset lost supply. Under this scenario the firm sees Brent averaging $110 in the second quarter, $100 in the third quarter and $90 in the fourth quarter. Should an Iran deal be reached and geopolitical tensions fade, JPMorgan sees Brent averaging $90 per barrel in the second half, before declining to $86 by the end of the year. Oil prices have been volatile over the last few weeks as tensions between Russia and Ukraine escalated, but the general trend has been higher. Experts were quick to note in the weeks leading up to Thursday's invasion that geopolitical worries wouldn't have moved the market like they did had fundamentals not already been so tight. Demand has bounced back since the onset of the pandemic in spring 2020, when an unprecedented drop in demand sent U.S. oil tumbling into negative territory. Producers meantime have not lifted output sufficiently to keep pace with demand. Jay Young, founder of King Operating Corporation, said lack of supply is the key driving force at the moment. "We have a supply problem," he said. "We're not drilling for oil and gas in the United States, and that's going to hurt us." He said prices could jump to $140 by the summer, during peak demand season. Natural gas futures jumped nearly 7% at one point on Thursday, to trade as high as $4.94 per million British thermal units. But those gains faded throughout the day, and the contract ended the day 1.2% lower. "US natural gas prices are effectively capped due to the limited number of LNG trains that are currently operating in the U.S.," said Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings. "[T]he takeaway for domestic natural gas is capped and at capacity." He said the main driver for Henry Hub pricing at the moment is weather. Amid fears of a gas shortage in Europe, the U.S. has redirected LNG cargoes from Asia. In January U.S. LNG exports to Europe hit a record high, according to data from Kpler. - CNBC's Michael Bloom contributed reporting.

A worker walks past oil barrels at a filling station in Chennai on February 24, 2022.

Arun Sankar | AFP | Getty Images

Prices across the energy complex surged on Thursday after Russia officially invaded Ukraine, prompting fears that supply disruptions could strain markets that are already in tight supply.

Oil topped $100 per barrel for the first time since 2014, while European natural gas futures spiked more than 50%. Analysts say prices are likely to keep climbing — at least for the time being.

"Oil prices are soaring with no end in sight," said Louise Dickson, senior oil market analyst at Rystad Energy. "Prices could approach $130 per barrel by June if the Ukrainian conflict disrupts Russian crude flows, but that estimate could soar higher if additional disruptions materialize."