Ukraine crisis: Oil traders bet prices will pass $200 a barrel this month

Oil prices spiked to their highest levels since 2008 on Monday as the United States and European allies weighed a Russian oil import ban and delays in the potential return of Iranian crude to global markets fuelled supply fears. 

In the first few minutes of trade, Brent crude reached $139.13 and US West Texas Intermediate (WTI) hit $130.50, both benchmarks striking their highest levels since July 2008. Their prices cooled a bit later but Brent and WTI crude still traded above $122 mark.  

Traders piled into options that oil could surge even further, with some even placing low-cost bets that futures surpass $200 before the end of March. More than 1,200 contracts for the option to buy May Brent futures at $200 a barrel traded on Monday, according to ICE Futures Europe data. The options expire March 28, three days before the contract settles. The price to buy them jumped 152 per cent to $2.39 a barrel.

A $150-a-barrel call option for the June Brent contract doubled from Friday, according to ICE, while the cost of $180 call options jumped 110 per cent. The front-month May contract for Brent surged dramatically early on Monday as traders panicked over talks of a Russian crude ban amid Libyan supply disruptions and delays to expected progress in Iran nuclear talks. 

JPMorgan Chase said last week Brent crude could end the year at $185 a barrel should Russian supplies continue to be disrupted, while Australia & New Zealand Banking Group saw around 5 million barrels a day of pipeline and seaborne oil supplies being impacted by new sanctions. 

Russia is the world’s third-largest oil producer behind the US and Saudi Arabia. The Opec+ member exported 7.8 million barrels a day of crude, condensate and oil products in December last year, according to the International Energy Agency, supplying key fuels such as diesel, fuel oil, vacuum gasoil and a petrochemical feedstock known as naphtha to buyers across Europe, the US and Asia.

Russian oil is becoming even less welcome in the global petroleum market as traders fret over the possibility of a US-led embargo of the nation’s supplies, and a purchase by Shell drew condemnation.

US Secretary of State Antony Blinken said on Sunday the Biden administration and its allies are discussing an embargo of Russian oil in response to the Ukraine invasion. Traders who handle Russian crude — spanning both Europe and Asia — said that possibility, in conjunction with the response to Shell buying Russian crude on Friday, has made the market more wary of touching the nation’s barrels.

After Shell purchased a cargo of Russia’s flagship Urals grade on Friday, Ukraine’s Minister for Foreign Affairs Dmytro Kuleba took to Twitter to ask the firm whether the oil smelt like “Ukrainian blood for you?”

Since the invasion began on February 24, oil prices have increased by about $30 a barrel. Under normal circumstances, that would translate into an extra $60 billion for Russia’s war chest over the course of a year. If they rise to $150, as analysts at Goldman Sachs Group and elsewhere have predicted, the extra amount going to Kremlin coffers could rise to $100 billion. The oil and gas sectors have largely been excluded from sanctions due to concerns over the impact of eliminating a key supplier during an inflationary spike. But calls are growing for Washington to lead efforts to formally ban imports, which the US is better-placed to do given its lower dependence on Russian supplies relative to other regions, including Europe.