Crude oil has experienced some of the wildest price swings in history. In April 2020, during the opening months of the COVID-19 pandemic, U.S. crude oil futures turned negative for the first time in history, with sellers offering $37.63 per barrel. Fast forward two years and fears that Russia will invade Ukraine have sent crude oil prices to a seven year high of almost $100 per barrel.
Why Are Oil Prices So High?
Oil prices are at their highest levels since 2014 after Russia said it would recognize the independence of the breakaway regions of Donetsk and Luhansk and moved its troops into eastern Ukraine.
Given the huge run up in oil prices ahead of any potential invasion, the markets are predicting triple digits should Russia make further incursions into Ukraine.
Western allies including Canada, the U.S., Europe and U.K. have unveiled limited sanctions against Russia and have said they would go further if Russian President Vladimir Putin further exacerbated the situation.
At seven percent, Russia is a major exporter of oil to the U.S. If that oil supply is halted, it would take a lot of work to make up that shortfall and put further pressure on global oil prices. Meanwhile, Europe gets roughly one third of its natural gas from Russian pipelines and some run through Ukraine. This raises the specter of massive disruptions to global energy markets.
Could Other Catalysts Send Oil Prices Higher?
There are other catalysts that could see crude oil prices surge even higher. OPEC (Organization of the Petroleum Exporting Countries) has been failing to meet its output targets, which is putting further strain on global oil supply.
January was yet another month in which OPEC failed to meet its output target, about 700,000 barrels per day short of its quota. Despite plans for another gradual oil-output in March, OPEC is poised to miss another monthly target.
Rising commodity prices have helped bolster the TSX at a time when the NASDAQ and S&P 500 are in correction territory. In addition to oil and gas, Russia is also a big supplier of wheat, nickel, and other commodities. Any military action out of Russia would certainly disrupt Russian exports.
That’s a positive for the Toronto Stock Market because it is weighted heavily to commodities. In fact, Canadian energy stocks have doubled since the last year. For comparisons sake, over the last 12 months, the TSX has rallied just 14.22%.
Moreover, any sanctions imposed on Russia on behalf of Canada would have limited impact since exports to Russia account for only 0.1% of total exports.
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