Global oil price surges to over $100 US as Russia attacks Ukraine

Global oil prices jumped on Thursday, with Brent briefly rising above $105 US a barrel for the first time since 2014, after Russia's attack on Ukraine exacerbated concerns about disruptions to global energy supply.

Russia launched an all-out invasion of Ukraine by land, air and sea in the biggest attack by one state against another in Europe since World War Two.

The United States and Europe have promised the toughest sanctions on Russia in response.

"If sanctions affect payment transactions, Russian banks and possibly also the insurance that covers Russian oil and gas deliveries, supply outages cannot be excluded," Commerzbank analyst Carsten Fritsch said.

At least three major buyers of Russian oil were unable to open letters of credit from Western banks to cover purchases on Thursday, sources told Reuters.

Brent crude touched a high of $105.79 US on Thursday, while West Texas Intermediate (WTI) crude, the North American benchmark price, also briefly climbed over $100 US a barrel.

However, oil prices on both sides of the Atlantic gave back much of their earlier gains after U.S. President Joe Biden said his country's sanctions package is "specifically designed to allow energy payments to continue."

The price of WTI closed at $92.81 US per barrel, up 71 cents.

"Russia is the third-largest oil producer and second-largest oil exporter. Given low inventories and dwindling spare capacity, the oil market cannot afford large supply disruptions," UBS analyst Giovanni Staunovo said.

"Supply concerns may also spur oil stockpiling activity, which supports prices."

Russia is also the largest provider of natural gas to Europe, providing about 35 per cent of its supply.

U.K. Prime Minister Boris Johnson said Britain and its allies would unleash a massive package of economic sanctions on Russia and that the West must end its reliance on Russian oil and gas.

China warned of the impact of tensions on the stability of the energy market.

"All countries that are truly responsible should take responsible actions to jointly maintain global energy security," a Chinese foreign ministry spokesperson said.

Global oil supplies remain tight as demand recovers from pandemic lows.

Reflecting the tightness, premiums on crude contracts for loading in one month over contracts for loadings in six months, a metric closely watched by traders, hit a record high at $11.55 US a barrel.

"This growing uncertainty during a time when the oil market is already tight does leave it vulnerable, and so prices are likely to remain volatile and elevated," said Warren Patterson, head of ING's commodity research.

Analysts say Brent is likely to remain above $100 US a barrel until significant alternative supplies become available from U.S. shale or Iran, for example.

The United States and Iran have been engaged in indirect nuclear talks in Vienna that could lead to the removal of sanctions on Iranian oil sales.

Iran's top security official Ali Shamkhani said on Twitter on Thursday that it is possible to achieve a good nuclear agreement with Western powers after significant progress in negotiations.

Analysts are warning of inflationary pressure on the global economy from $100 US oil, especially for Asia, which imports most of its energy needs.

"Asia's Achilles heel remains its vast import needs for energy, with surging oil prices bound to take a hefty bite out of income and growth over the coming year," said HSBC economist Frederic Neumann.