Oil prices jumped 5% to over $121 a barrel on Wednesday as disruptions to Russian and Kazakh crude exports via the Caspian Pipeline Consortium (CPC) pipeline added to worries over tight global supplies.
Brent crude futures advanced 5.3% to end the day at $121.60. U.S. West Texas Intermediate (WTI) crude futures settled $5.66, or 5.18%, higher at $114.93 per barrel.
Crude oil exports from Kazakhstan's CPC terminal on Russia's Black Sea coast stopped fully on Wednesday after damage caused by a major storm and continued bad weather, a port ship agent and the head of CPC said.
Russian Deputy Prime Minister Alexander Novak later said that oil supplies by the CPC may be completely stopped for up to two months.
The CPC pipeline carries around 1.2 million barrels per day of Kazakhstan's main crude grade, which accounts for 1.2% of global demand.
The situation adds to market worries about the ripple effect of heavy sanctions on Russia, the world's second-largest crude exporter, after its invasion of Ukraine, which Moscow calls a "special military operation."
"Prices are primarily rising on the loss of CPC Blend crude exports out of Novorossiisk .... adding further bullish fuel to the fire as the drop in Russian crude exports finally appears underway," said Matt Smith, lead oil analyst for the Americas at Kpler.
U.S. President Joe Biden is set to announce more Russian sanctions when he meets European leaders on Thursday in Brussels, including an emergency meeting of NATO.
European Union member countries remain split on whether to ban imports of Russian crude and oil products, but this might change once short-term contracts run out.
"There's a growing consensus that the de facto ban on Russian oil purchases has resulted in a supply disruption of 2 to 3 million barrels a day, and until the world can figure out how to replace that oil we're going to march on higher until demand destruction takes place," said Andrew Lipow, president of Lipow Oil Associates in Houston.
U.S. crude stocks fell 2.5 million barrels last week, government data showed, compared with expectations for a modest increase. Crude production remained flat at 11.6 million barrels per day for the seventh straight week.
Evidence of concern about supply can be seen in the market structure, where front-month prices are trading at a heavy premium to following months, as buyers scramble to secure supplies.
"I think you will see record backwardation and you will see $150 a barrel this summer," said Trafigura's Ben Luckock, at the FT Commodities Global Summit. He said it was possible that oil could reach $200 a barrel.