U.S. Crude Oil Tops $130 A Barrel, A 13-year High On Possible Western Ban Of Russian Oil

U.S. crude oil surged more than 8% in early trading on Sunday evening as the market continued to react to supply disruptions stemming from Russia’s ongoing invasion of Ukraine and the possibility of a ban on Russian oil and natural gas.

West Texas Intermediate crude futures, the U.S. oil benchmark, traded 8% higher to above $125 a barrel, the highest since July 2008. At one point the price rose to $130.50 Sunday evening before retreating.

The international benchmark, Brent crude, traded 9% higher to $128.60, also the highest price seen since 2008. Brent hit a high of $139.13 at one point overnight.

“Oil is rising on the prospect for a full embargo of Russian oil and products,” said John Kilduff of Again Capital. “Already high gasoline prices are going to keep going up in a jarring fashion. Prices in some states will be pushing $5 pretty quickly.”

“We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets,” he said. “That’s a very active discussion as we speak.”

While Western sanctions against Russia have so far allowed the country’s energy trade to continue, most buyers are avoiding Russian products already. Sixty-six percent of Russian oil is struggling to find buyers, according to JPMorgan analysis.

This spike in oil prices above $125 should never have happened, and could easily have been stopped at $100 if the Biden White House wanted to do that. There’s a limit to sanctions on Russia and how far Russian oil production can drop without causing severe poverty in Russia. Oil production and exports are a big part of the Russian economy and production can only drop about 1 million barrels per day in Russia without causing severe poverty in Russia (when adding in the effects of other financial sanctions, and western corporations leaving Russia). It’s completely wrong to severely punish the Russian people for Putin’s war against Ukraine, and therefore sanctions on Russian oil production need to stop with a result of about a 1 million barrel per day drop in production.

Hopefully that’s where this situation is going, and Russian oil that used to flow to Europe will be diverted to China and India, while more Middle Eastern oil flows to Europe. There’s enough excess capacity in Saudi Arabia, Kuwait, and the UAE to increase their production by 1 million barrels per day quickly, and completely offset the drop in Russian production. This rearrangement of production and shipping could be done quickly and could have been well in progress today if the Biden White House had prepared properly for the Russian invasion and resulting sanctions. In the longer term, North American oil production can also rise substantially from current levels. There’s much more oil that can be produced in North America at long-term prices between $90 and $100 per barrel.

The Biden White House appears to be deliberately causing an oil price spike, probably in an attempt to push Americans into compact vehicles and EVs. This extra push is completely unnecessary because the move towards highly fuel efficient vehicles and EVs is already happening at a brisk pace. We don’t need this manufactured oil price spike. Let’s limit the impact on Russian oil production to about a million barrels per day, ask our Arab allies to increase production by the same amount, and bring oil prices back down under $100. This inflationary spike is ridiculous, unnecessary, and damaging to our economy, which is already suffering from high inflation.

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