Oil gains as Russia's gas-flow cuts escalate energy crisis

Oil edged higher after Russia cut natural gas supplies to Poland and Bulgaria, escalating Europe’s energy crisis.

Oil edged higher after Russia cut natural gas supplies to Poland and Bulgaria, escalating Europe’s energy crisis.

West Texas Intermediate traded above US$102 a barrel after gaining 3.2 per cent on Tuesday. European gas prices surged as much as 24 per cent Wednesday after Russia halted flows to Poland and Bulgaria, making good on a threat to stop supply to countries that refuse President Vladimir Putin’s demand to pay for the fuel in rubles. 

On Tuesday, Germany said a full embargo on Russian oil would be manageable, potentially laying the groundwork for a continent-wide ban that may upend global crude trade. The U.S. and U.K. have already pledged to ban imports from the OPEC+ producer.

The renewed geopolitical risk to energy markets comes just as the tightest corner of the oil sector flared up again. U.S. diesel futures settled at a fresh record Tuesday, while profits from making the fuel in Europe are the highest since at least 2011. Russia is Europe’s largest external supplier of the middle distillate.  

“Russia’s latest actions provide an alarming glimpse of things to come for other EU members and has put energy security concerns front and center of the political agenda,” said PVM Oil Associates analyst Stephen Brennock.