European gas prices soar and oil tops $105 after Russia attacks Ukraine

European natural gas prices soared by almost 70 per cent and crude oil exceeded $105 a barrel for the first time since 2014 after Russia’s invasion of Ukraine triggered fresh worries about global energy supplies.

Fears that a war could disrupt global energy supplies briefly sent Brent crude up as much as 9 per cent to $105.79 a barrel, although it later gave up much of that advance. Futures linked to TTF, Europe’s wholesale gas price, surged as much as 69 per cent to €142 per megawatt hour before the gains were trimmed to 40 per cent. The European gas price has risen from €16 a year ago.

Russia is an important producer of raw materials, with Europe relying on the country for about a quarter of its oil and more than a third of its gas. It is also the world’s biggest supplier of wheat.

Brent settled 2.3 per cent higher at $99.08 a barrel, after US President Joe Biden announced a flurry of sanctions that focused on Russia’s financial sector, rather than its energy industry.

Amrita Sen of Energy Aspects, a consultancy, said “the fear of supply disruptions had gone away” after Biden decided not to impose energy related sanctions on Russia.

“The west can’t afford energy sanctions given where oil and gas prices are,” she said.

Analysts at S&P Global Platts said the effect of “physical disruption” to Russian gas flowing to Europe via Ukraine would be “extreme”, and possibly similar to the price jump in December when European wholesale gas prices rose above €180 MWh in response to cold weather and problems at French nuclear power plants. 

“Any disruption to Ukrainian transit flows would immediately tighten gas supply to Europe and drive spot prices higher,” they said.

Opec, the oil producers’ cartel, is already struggling to meet its output targets as demand for crude rebounds following the easing of lockdown restrictions. This has pushed up prices, with analysts warning there is limited capacity to increase supplies if flows from Russia are affected by sanctions.

The same is true in gas markets, where no single country can replace the kind of volume that Russia can supply.

Russia’s state-owned gas producer Gazprom said on Thursday that exports through Ukraine to Europe were continuing. Gas in storage across the continent is already at a five-year low.

“Oil and natural gas prices have become the crisis’ fear barometer,” said Norbert Rücker of Julius Baer. “Any disruption of flows between Russia and Europe, due to damage or sanctions, would drastically add to the already present supply scarcity.”

Other commodity markets were also whipsawed by the Russian onslaught on Ukraine.

Wheat futures in Chicago rose almost 6 per cent to $9.26 a bushel, the highest level since July 2012. Russia and Ukraine are leading exporters of the grain, producing 14 per cent of global wheat and accounting for just under 30 per cent of all wheat exports. The two countries are also large exporters of corn and sunflower oil.

Fears rose over supply flows after news that Russia had blocked off the Azov, an inland sea connected to the Black Sea. Both Ukraine and Russia have loading ports, and the ban on commercial vessels from the Azov to the Black Sea would likely wreak havoc on grain and steel markets.

“This is a really serious situation for agricultural markets,” said Dave Whitcomb at commodity specialist Peak Trading Research. “There are fundamental concerns around whether grains will flow out of the Black Sea states, and both wheat and corn markets are just on fire.”

Metals prices also climbed on Thursday, with aluminium, used in everything from beer cans to cars, rising more than 3.5 per cent to a record high of $3,449 a tonne. Russia is a big producer of aluminium as well as copper, nickel, platinum and palladium.

In 2018, the aluminium market was plunged into turmoil after the US slapped sanctions on Rusal and other companies linked to oligarch Oleg Deripaska.

“Russia is a significant producer of commodities so overnight developments in eastern Europe could have material implications for global supply chains,” said Dominic O’Kane, analyst at JPMorgan.

Elsewhere, the price of gold fluctuated. The precious metal gave up an advance of as much as 3.4 per cent. It fell 0.8 per cent to $1,893 a troy ounce late in the trading day in New York.

The brief rise in gold offered little support to Polymetal. About 38 per cent was sliced off the market value of the Russian miner, which is a FTSE 100 constituent, as investors dumped the stock on concern about potential sanctions.

“Polymetal believes that targeted sanctions on the company remain unlikely,” the group said in a statement.

Another big loser was Evraz, the steelmaker controlled by Roman Abramovich, the owner of Chelsea football club, and Alexander Abramov. Its shares fell roughly 30 per cent.