futures surged more than 24 per cent on Monday morning, crossing the $100-a-barrel-mark following production cuts by oil producing countries in West Asia.
At 9.11 am on Monday, May Brent oil futures were at $114.97, up by 24.04 per cent, and April crude oil futures on WTI (West Texas Intermediate) were at $114.60, up by 26.07 per cent. March crude oil futures were trading at ₹8864 on during the initial hour of trading on Monday against the previous close of ₹8363, up by 5.99 per cent, and April futures were trading at ₹8500 against the previous close of ₹8019, up by 6 per cent.
Warren Patterson, Head of Commodities Strategy of ING Think, said in the Commodities Feed on Monday that oil prices skyrocketed on Monday morning, with ICE Brent making easy work of $100 a barrel. Over the weekend, there were no signs of de-escalation. If anything, the situation appears to be deteriorating further.
In addition, upstream oil production has started to shut-in, with producers facing storage constraints. Iraq, Kuwait, and the UAE began reducing oil production. Iraq, the first to start cutting supplies last week, has reportedly reduced output by around 1.5 million barrels a day. Meanwhile, over the weekend, Kuwait reportedly cut output by as much as 300,000 barrels a day, he said.
“The longer this goes on, the more supply we will see shut-in. This is a concern for markets. Even if flows through the Strait of Hormuz start to resume, it will take time for upstream production to ramp up. The combination of these production shut-ins and no signs of de-escalation in the war means the market is having to aggressively price in a prolonged supply disruption. The bottom line is that, as long as we don’t see oil moving through the Strait of Hormuz, oil prices will only move higher,” he said.
The International Energy Agency (IEA) said that there are no plans yet for a coordinated release of oil from government reserves. The European Union also told member states that there’s no need to tap government oil stocks yet. Clearly, pressure for such action will grow with supplies tightening and crude trading above $100 a barrel. There were reports last week that the Japanese government is considering tapping its reserves, given developments in West Asia, he said.
March natural gas futures were trading at ₹313.30 on MCX during the initial hour of trading on Monday against the previous close of ₹295.60, up by 5.99 per cent.