Oil pares gains with price volatility rising on Ukraine tensions

Brent oil edged higher, after paring earlier gains, with prices growing increasingly volatile in the face of geopolitical tensions over Ukraine.

Brent oil edged higher, after paring earlier gains, with prices growing increasingly volatile in the face of geopolitical tensions over Ukraine. 

The global benchmark traded near US$95 a barrel, while West Texas Intermediate traded above US$93, both about US$2 off their highs for the day. Wider markets struck a risk-off tone, with equities in Europe plunging to a three-week low. 

While crude has been swinging wildly in recent days as tensions around Ukraine grow, the underlying market remains robust. Physical barrels priced off a key global benchmark are hitting unprecedented levels, and the spread between between Brent crude’s two nearest futures contracts touched US$2 a barrel.

Crude is swinging after a flurry of weekend diplomacy over Ukraine -- including a telephone call between Presidents Joe Biden and Vladimir Putin -- attempted to calm tensions. While Washington has warned a Russian attack on Ukraine may be imminent, Moscow has repeatedly denied that it plans to invade its smaller neighbor.

Oil remains near its highest level since 2014 as the crisis in Europe reinforces a rally that’s been underpinned by soaring worldwide demand, supply interruptions and declining stockpiles. Its run of weekly gains was the longest since October, before the emergence of the omicron virus variant. A potential conflict in Ukraine, coupled with retaliatory U.S.-led sanctions, would risk upending global energy flows. 

“I can see the risk premium building together with the tensions in eastern Europe,” said Hans van Cleef, a senior energy economist at ABN Amro Bank NV. “But still I find it hard to believe that in case of escalation there will be sanctions imposed which would prevent Russia exporting oil.”