WTI melt-up continues, prices briefly eclipse 2014 highs in $112.00s

• Oil continued its historic surge on Wednesday, with WTI rallying as high as the $112.40s to eclipse 2014 highs.
• Traders are realising that harsh Western sanctions on Russia is disrupting global oil flows.
• Prices have since backed off a little to near $110, but are still up over $3.0 on the day.

Oil prices continued their historic surge higher on Wednesday, with front-month WTI futures rallying as high as the $112.40s to eclipse 2014 highs around $112.20 and eye a test of last decade’s highs just below $115.00. Prices have since backed off a little to chop either side of the $110 level, but at current levels in the mid-$109.00s still trade higher by about $3.0 on the day, taking currently weekly gains to above $17.00.

The melt-up in crude prices has been driven by a realisation since the start of the week that the harsh financial sanctions implemented by Western nations against Russia for its Ukraine invasion will likely prove highly disruptive to global oil flows. Analysts at Reuters said on Wednesday that “trade in Russian oil was in disarray as producers postponed sales, importers rejected Russian ships and buyers worldwide searched elsewhere for crude as Western sanctions”.

Financial press reported that oil buyers are avoiding oil from the CPC pipeline (providing 1.0% of world supply) that goes through Kazakhstan due to sanction concerns. Market commentators noted that Russia’s main Urals oil benchmark was offered at a record discount to peers on Wednesday, but still got no bidders. According to Energy Aspects, an energy consultant, 70% of Russian crude oil trade is currently “frozen” as a result of bank sanctions, higher freight rates and political risks.

OPEC+ agreed to go ahead with a 400K barrel per day output quota hike in April as expected, news which didn’t result in a crude oil market impact, just as traders shrugged off an announcement from member nations of the International Energy Agency a day earlier that 60M barrels would be released from oil reserves. “The next frontier of oil prices will be defined by prices in search of demand destruction,” RBC Capital Markets analysts said. “Two weeks ago, our call for $115 a barrel by summer seemed aggressive, in light of the ongoing tightening fundamental framework, infused by geopolitics, there may be further risk to the upside,” they continued.