(Bloomberg) — Oil posted its biggest daily swing ever, with Brent jumping to nearly $140 and then plummeting after the US said it was considering a ban on Russian oil imports.
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The international benchmark subsequently fell to around $120, with West Texas Intermediate trading above $116, heightening fears of a major inflationary shock to the global economy. The Biden administration is considering whether to ban Russian oil imports without allies in Europe, at least initially, people familiar with the matter say.
Prices fell after Germany said it had no plans to stop energy imports from Russia, which added to market volatility.
Diesel futures in Europe and the US hit their highest levels in decades, while gasoline contracts also jumped to a high not seen in more than a decade. Shell Plc is restricting fuel oil sales in parts of Germany as fuel supplies are under pressure.
See also: What a ban on Russian oil could mean for an already chaotic market
Ukrainian and Russian officials will meet again for a third round of talks. But since Russian President Vladimir Putin has said Kyiv must go along with his demands for the fighting to end, hopes for progress at the meeting later Monday are slim. U.S. Secretary of State Anthony Blinken told NBC over the weekend that the White House is in “very active talks” with Europe to stop ratcheting up economic pressure on Putin, but most buyers still refuse to accept it, leading to an embargo on everything but the name.
“A ban on the export of Russian oil would be an important step for the White House. The move will likely require consent or approval from OPEC, which will need to increase production along with the US to avoid a major supply shock that could potentially drive prices even higher,” said Chris Beauchamp, chief market analyst at IG.
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At some point on Monday, the price of Brent crude rose $21 as the market adjusted to the possibility of a loss of supply from one of the world’s top three producers. JPMorgan Chase & Co. said Brent could end the year at $185 a barrel if supplies from Russia continue, while one hedge fund said even $200 is a possibility.
See also: Oil traders bet prices could top $200 a barrel this month
Rising prices for oil and other commodities are sounding the alarm everywhere. The International Monetary Fund warned over the weekend of serious consequences for the global economy. Major oil importers are starting to come under pressure, with the rupee among the biggest foreign exchange losses in Asia amid fears that the Reserve Bank of India will have to raise its inflation forecast but has little room to tighten monetary policy.
“We still have a lot of twists and turns ahead of us,” Mike Muller, head of Asia for Vitol Group, said Sunday in a podcast produced by Dubai-based consultant and publisher Gulf Intelligence. “While I think the world is already considering the fact that the Western Hemisphere will not be able to get a serious amount of Russian oil, I don’t think we have already assessed everything.”
Brent’s recent fluctuations dwarf those seen during the 2008 global financial crisis and the collapse in demand caused by the coronavirus pandemic. Traders, shippers, insurers and banks are increasingly wary of taking on or financing purchases of Russian barrels as they must navigate international financial sanctions.
Efforts are being made to increase supply. The two senior US officials met with members of the government of Venezuelan President Nicolás Maduro in Caracas to discuss global oil supplies and the country’s ties to Russia, people familiar with the matter said. Meanwhile, Iran has made progress towards reaching an agreement with world powers on its nuclear program, which could pave the way for the lifting of sanctions on Tehran’s oil by the third quarter.
However, supplies from some of the other major manufacturers continue to be a concern in the near future. OPEC member Libya said that its production fell below 1 million barrels per day due to the internal political crisis. The Organization of the Petroleum Exporting Countries and its allies also decided last week to stick to a course of only gradual increases in production.
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