The threat of war in Ukraine drives up the price of oil

CALGARY — Oil prices are rapidly heading toward US$100 a barrel, but analysts say the odds of crude breaking that threshold largely depend on what happens next in Ukraine.

The potential for war in Eastern Europe has made energy prices volatile as investors fear a conflict between Russia and Ukraine could disrupt supplies. Russia produces 10% of the world’s oil supply.

On Wednesday, the West Texas Intermediate benchmark price edged closer to US$94 a barrel in morning trading, and many experts suggested it would rise.

“I think based on the momentum we’re seeing, unless we see a major pullback from Russian aggression, we’re likely to go above $100 a barrel,” said Rory Johnson, chief executive and economist at market at Price Street Inc., based in Toronto.

“But for now, this appears to be purely geopolitical risk pricing, rather than an immediate fear of actual barrel loss.”

Investors have closely followed developments in Ukraine, where Russia has been gathering troops for a possible invasion. The United States and other Western countries have already responded with sanctions – raising concerns among investors that Russia could respond by halting oil exports – and Germany withdrew a document needed to certify the pipeline. Nord Stream 2 from Russia.

Johnston said the Ukraine crisis was very unlikely to cause any physical loss of barrels to the market, but if it did it would be “a very big deal”.

In the worst-case scenario, he said — such as an all-out armed conflict between Russia and NATO forces — oil prices could skyrocket.

“Let’s say we lost half the Russian production, which again is very unlikely,” Johnston said. “But yeah, $130, $150 – pick a number in the hundreds and you could very easily justify it.”

Patrick de Haan – head of oil analysis for gasoline price information website GasBuddy.com – said the effects of tensions in Ukraine have already affected gasoline prices in Canada, the average price at the pump increasing steadily over the past few weeks. On Wednesday, according to GasBuddy.com, the average retail gasoline price in Canada was 156.2 cents per litre.

The threat of war in #Ukraine is causing #oil prices to skyrocket. #cdnpoli

“We expect prices to continue to rise through the spring and potentially summer,” de Haan said in an email, adding that prices typically rise in the spring anyway and the situation in Eastern Europe should exacerbate this trend.

“All of these factors could contribute to a potential increase in gasoline prices of 15 to 30 cents per liter by the end of May, or more depending on the outcome of the situation in Russia,” he said.

A report by TD Economics on Wednesday said the economic fallout from the Ukraine crisis will depend “heavily on what comes next” and the extent of any further Russian incursion into Ukraine. TD presented two scenarios – one in which oil prices rise but reverse in a quarter or two.

In a second, more serious scenario, TD says the energy shock could be accompanied by a “global confidence shock” that would pull stock markets lower and could impact Canadian economic growth in 2022.

A Canadian company with operations in Ukraine said Wednesday it was preparing for a potential war by moving its employees away from the line of conflict. TIU Canada, a solar energy company owned by Calgary-based Refraction Asset Management, has been working in Ukraine since 2016 and has invested more than $65 million in Ukrainian solar power plants.

“We have also ensured that our employees have the necessary emergency supplies in the event of a disaster, as well as temporary locations to shelter in place if necessary,” said TIU Canada General Manager Michael Yurkovich. , in an emailed statement.

TIU Canada, which was the first investor in Ukraine under the Canada-Ukraine Free Trade Agreement and remains one of the largest Canadian investors in Ukraine, said it was confident that NATO and the UN had to intervene and stop the Russian escalation.

“Nevertheless, our company continues to operate and produce energy in Ukraine,” Yurkovich said. “In some places, people continue to act calm and go about their business. That includes us.”

On Wednesday, flights to the Ukrainian capital of Kyiv appeared to be unavailable on Air Canada’s website until March 9. The Montreal-based airline does not fly directly to Ukraine, but does offer flights to Kiev and the port city of Odessa via Star Alliance partner airlines such as Lufthansa and Swiss International Air, both of which have halted their flights. trips to the besieged country.

Air Canada said last week that it will allow customers traveling to Ukraine to change their trip free of charge.

Toronto-based gold miner Kinross Gold Corp., which operates in Russia, said its operations are unaffected by U.S. sanctions announced Tuesday.

Kinross, which operates the Kupol mine in the Chukotka region of northeastern Russia, said it has operated successfully in Russia for more than 25 years and has been through similar situations before.

In addition to the Kupol mine, Kinross owns the Udinsk project in Russia.

Kinross, which also has mines and projects in the United States, Brazil, Mauritania, Chile and Ghana, said it expects around 13% of its global production this year to come from Russia.

This report from The Canadian Press was first published on February 23, 2022.

With files from The Associated Press and Christopher Reynolds in Montreal.

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