Fears of a Russian invasion of Ukraine pushed global oil prices steadily upward over the last month. In the hours after Russia opened fire, the price of crude oil climbed past $100 per barrel for the first time since 2014.
Brent, an international benchmark, peaked at $105.79 early Thursday. U.S. benchmark West Texas International (WTI) reached $100.54 — close to $40 higher than this time last year.
Oil prices climbed steadily through much of last year as demand outstripped supply. Then Russia’s threats toward its neighbor injected a new level of risk into the world’s oil market. As tensions mounted, the probability of invasion, and subsequently of supply disruption, went up. Prices followed.
On Wednesday night, the probability of invasion reached 100%.
“That’s really the big difference today,” said Rob Godby, an economics professor at the University of Wyoming. “Geopolitical risk is now reality.”
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In Europe, natural gas prices rose, too. Experts anticipate the price of U.S. natural gas increasing more slowly, and to a lesser degree, than oil. While Europe gets roughly 40% of its natural gas from Russia, most natural gas produced in the U.S. is consumed domestically, insulating the market from international supply changes.
“If this was a long and persistent increase in prices — months or years — then you would see the export market react, and that could drive prices up in the United States,” Godby said.
But by then, he noted, producers would also have plenty of time to drill new wells, boosting output along with exports.
Oil markets are a different story. Even though they’re likely to stabilize, the increased probability of disruption isn’t going anywhere.
“Prices are going to be high as long as this conflict goes on,” Godby said.
What happens next depends largely on two hard-to-predict actors: oil producers and Russia.
President Joe Biden warned earlier this week that the U.S., Europe and other allies would impose increasingly harsh sanctions on Russian escalation. A new wave of sanctions announced Thursday cracked down on Russian banks and elites, and on several key economic sectors, but stopped short of curbing Russia’s ability to export oil and gas.
“This is going to impose severe costs on the Russian economy, both immediately and over time,” Biden said on Thursday. “We have purposely designed these sanctions to maximize the long-term impact on Russia and to minimize the impact on the United States and our allies.”
Sanctions targeting the Russian energy sector are still an option. Or Russia could choose to stop supplying oil and gas to Europe at any time, though experts aren’t sure how long the country would be able to sustain the stoppage.
“Could they weaponize their hydrocarbon exports? Absolutely,” said Gabriel Collins, a fellow at Rice University’s Baker Institute for Public Policy. “Are they potentially cutting off their nose to spite their face? Yes.”
The world’s biggest oil producers and consumers are working together to secure global supply, including through collective release from strategic petroleum reserves in the U.S. and elsewhere, Biden said.
He also reiterated his commitment to bringing down already-high gasoline prices, and urged the nation’s oil and gas producers, which have been slow to return to pre-pandemic output, to help ease the burden on consumers. Wyoming, with its high proportion of harder-to-permit federal leases, has had particular trouble bouncing back.
If Russia is cut off from the global oil market, and production elsewhere doesn’t increase, prices could skyrocket.
“American oil and gas companies,” Biden said, “should not exploit this moment to hike their prices to raise profits.”
According to Godby, U.S. oil markets typically mirror international trends, and gasoline often follows. The events unfolding on the international stage will probably be felt by Americans at the gas pump.
“As a rule of thumb, if prices of oil go up by 10%, it’s not a bad guess to say that gasoline prices will go up by a similar amount,” Godby said.
Regular gasoline cost about $3.42 in Wyoming on Thursday, almost a dollar higher than a year ago.