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Oil Prices Surge as Ukraine Tension

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Oil prices rose as the crisis between Russia and Ukraine grew worse.

On Monday evening, Russian President Vladimir Putin sent troops into two separatist regions of eastern Ukraine, declaring that he would recognize Donetsk and Luhansk’s independence.

In early Asian trading Tuesday, US crude rose 3.72 percent to $94.46 per barrel, while Brent rose 2.46 percent to $97.73. Rising tensions have caused market jitters, driving up oil prices. On Friday, US Vice President Joe Biden stated that the US believes Putin has decided to attack Ukraine “in the coming days.”

Russia has amassed approximately 150,000 troops along its border with Ukraine, and the Biden administration announced last week that up to 7,000 additional troops had joined.

Military tensions have fueled fears that Russia is preparing to invade Ukraine, evoking memories of the Kremlin’s illegal annexation and occupation of Crimea in 2014.

Last year, Russia was the largest supplier of natural gas and oil to the European Union, and these tensions support oil prices.

Crude prices recently surpassed $90 per barrel, representing a more than 20% increase this year and a more than 80% increase since the beginning of 2021. However, those gains can attribute to other factors, such as a lack of supply.

Lipow predicted that markets would look to Saudi Arabia, the United Arab Emirates, and Kuwait to use some spare capacity, which he estimated to be between 3.5 million and 4 million barrels per day. According to Katrina Ell, senior APAC economist at Moody’s Analytics, geopolitical tensions have added $10 to $15 per barrel to oil prices.

The majority of Asia’s major economies are net oil importers.

Gold hit a near nine-month high on Tuesday as the situation in Eastern Europe deteriorated following Russia’s order to send troops into separatist regions of eastern Ukraine, supporting demand for safe-haven bullion.

Spot gold was up 0.2 percent at $1,909.60 per ounce by 0332 GMT, after reaching a high of $1,913.89 per ounce earlier in the day. Gold futures in the United States rose 0.6 percent to $1,911.50. On Monday, Russian President Vladimir Putin recognized two breakaway regions in eastern Ukraine as an independent. He ordered the Russian Army to launch what Moscow called a peacekeeping operation into the region, escalating a crisis that the West fears could lead to a significant war. The benchmark 10-year yield in the United States fell as the Ukraine crisis worsened and bets on a rate hike by the Federal Reserve in the United States increased.

While gold regarding as a hedge against inflation and geopolitical risks, interest rate increases tend to raise the opportunity cost of holding non-yielding bullion.

Spot gold may test a resistance level of $1,920 per ounce, a break above which could open the way to $1,940.

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