Oil rallies to seven-year high as Opec+ meets and IEA warns of energy security threat

The 23-member alliance of oil producers will convene on Wednesday to discuss bringing additional crude supplies to the market

An oil and petrochemical storage facility in China. Oil extended its relentless rally before an Opec+ meeting as the International Energy Agency warned that global energy security is under threat following Russia’s military offensive in Ukraine. BloombergShow less

Oil prices rallied to a seven-year high as Opec+ producers meet on Wednesday and the International Energy Agency (IEA) warned of an energy security threat as the Ukraine-Russia crisis intensifies.

Brent, the global benchmark for two thirds of the world's oil, was 7.6 per cent higher at $112.95 per barrel at 5.11pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was up 7.54 per cent, trading at $111.21 a barrel.

The IEA agreed on Tuesday to release 60 million barrels of oil from emergency stocks to bring stability to energy markets as the Russia-Ukraine crisis intensifies.

The Paris-based agency said Russia’s military offensive had come against a backdrop of “already tight global oil markets, heightened price volatility, commercial inventories that are at their lowest level since 2014 and a limited ability of producers to provide additional supply in the short term”.

Damage after the shelling of buildings in central Kharkiv, Ukraine. EPA

Workers from a local construction company weld anti-tank obstacles to be placed on roads around Kyiv as Russia's invasion of Ukraine continues. Reuters

Anti-war protesters attach sunflowers to barriers in front of the Russian embassy. Reuters

Ukrainian volunteers prepare food for displaced people outside Lviv railway station in western Ukraine. AP

A Ukrainian soldier holds an anti-tank launcher north-east of Kyiv. AFP

Ukrainian refugees rest at Warsaw East train station in Poland. EPA

Children look out from a carriage window as a train prepares to depart from a station in Lviv to the town of Uzhhorod near the border with Slovakia. AFP

A girl who fled Ukraine is reunited with her father in Medyka, south-eastern Poland. AP Photo

Tears outside a house damaged by a Russian airstrike in Gorenka, on the outskirts of Kyiv. AP Photo

A civil defence member is poised to shoot as a vehicle approaches a checkpoint in Gorenka. AP Photo

A Ukrainian civil defence member in the garden of a house damaged by a Russian airstrike. AP Photo

Members of the US Army 3rd Infantry Division board a plane bound for Germany in Savannah, Georgia. EPA

Prayers for peace in Ukraine at the Vatican's Saint Peter's Square. AFP

A woman (right) hugs an arriving passenger from a train carrying refugees at Berlin's central station. EPA

Firefighters battle a blaze in a Kharkiv police building hit by shelling. AFP

A Ukrainian woman makes a phone call after crossing the Slovakian border. AFP

A doctor takes shelter in the basement of a Kyiv perinatal centre. Reuters

Debris which locals say was caused by shelling in separatist-controlled Horlivka, Donetsk. Reuters

MPs in London give a standing ovation to Ukraine ambassador Vadym Prystaiko, who was in the public gallery. AP

Distraught women and children fleeing Ukraine wait to enter Poland at the Korczowa crossing. Getty

Newborn Ivan lies next to his mother as they shelter in the basement of a Kyiv perinatal centre. Reuters

Firefighters hand water to people in a Ukrainian train full of refugees in Przemysl, Poland. Reuters

Ukrainian refugees queue to file for residency permits at Prague's police headquarters. AFP

Firefighters work to contain a blaze in buildings housing the Kharkiv regional police department. AFP

A woman and her children sit in a tent in the Kyiv subway, using it as a bomb shelter. AP

Firefighters work to extinguish a blaze at the Kharkiv National University building, which city officials said was damaged by Russian shelling. Reuters

An elderly woman comforts a child as they take shelter inside an underground station in Kyiv. Reuters

People queue at a pharmacy in central Kyiv. Reuters

A woman is consoled by a volunteer after fleeing from Russia's invasion of Ukraine, at the border crossing in Siret, Romania. Reuters

A Ukrainian civilian in the city of Zhytomyr practises throwing petrol bombs. Reuters

Ukrainian President Volodymyr Zelenskyy poses after an interview with Reuters in Kyiv. Reuters

A blast is seen at Kyiv's TV tower. Reuters

A girl in Siret, Romania, covers herself with a blanket after fleeing from Ukraine. Reuters

Ukraine's ambassador to the US, Oksana Markarova, acknowledges applause from US first lady Jill Biden as they attend President Joe Biden's first State of the Union address in Washington. AFP

A man walks past the remains of Russian military vehicles in Bucha, close to Kyiv. AFP

Civilians cross a river on a blown-up bridge on Kyiv's northern front. Defending the capital is a 'key priority', Ukraine's president has said. AFP

Russian aircraft on the ground at Luninets Airbase, Belarus, about 50 kilometres north of the Ukrainian border. AFP

People look at the gutted remains of Russian military vehicles on a road in the town of Bucha. AP

A woman with a child who fled from the war in Ukraine reunite with their family after crossing the border in Medyka, Poland. AP

Animal keeper Kirilo Trantin comforts an elephant at Kyiv Zoo. AP

An armed man stands by the remains of a Russian military vehicle in Bucha. AP

Ukrainian families say goodbye as they prepare to board a bus to Poland at Lviv, western Ukraine. AP

Paramedics move a man who was wounded by shelling in a residential area of Mariupol, south-eastern Ukraine. AP

Rescuers work at the site of a Russian strike in Zhytomyr. Reuters

US actor and director Sean Penn attends a press briefing at the Presidential Office in Kyiv. Reuters

Demonstrators participate in a protest against Russia’s invasion of Ukraine at Lafayette Square in Washington. AFP

Ukrainian soldiers rest while others eat near the front line with Russian troops in northern Kyiv. AP

A barricade made of trams, buses and sand bags is seen through the window of car in the northern part of Kyiv. AP

Members of the European Parliament applaud after Ukrainian President Volodymyr Zelenskyy's speech at a special session to debate its response to the Russian invasion of Ukraine. Reuters

Ambassadors and diplomats walk out as Russia's Foreign Minister Sergey Lavrov (on screen) speaks during a recorded message at the 49th session of the UN Human Rights Council in Geneva. EPA

“The situation in energy markets is very serious and demands our full attention. Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” IEA’s executive director Faith Birol said.

Russia, one of the top crude producers in the world, has come under a slew of sanctions targeting its economy and banking industry but not its energy and commodity industries.

In 2020, the country produced about 10.2 million bpd of crude oil and natural gas condensate, placing it second after the US, with Saudi Arabia in third place, according to the 2021 BP Statistical Review of World Energy. About 60 per cent of Russia’s oil exports go to Europe and another 20 per cent to China.

The IEA oil release and more Opec+ barrels "will not derail the powerful bull oil market", said Ehsan Khoman, head of emerging markets research at Japan's largest lender, MUFG Bank.

"The immediate rally in oil prices is a testament that markets are already looking through the {IEA] announcement and remain squarely focused on the extreme state of shortage oil markets are in today corroborated by the super backwardation levels with Brent crude prompt timespreads currently trading $5 a barrel above the next month – an unprecedented level that indicates trades are paying huge premiums to secure more immediate supply," Mr Khoman said.

On Wednesday, the Opec+ 23-member alliance of oil producers convened and agreed to bring 400,000 barrels per day of crude to the market in April, sticking to its schedule of monthly increases in crude production, despite lingering concerns that an escalation in the Russia-Ukraine conflict could potentially disrupt global energy supplies.

Following a virtual meeting of the bloc's Joint Technical Committee on Tuesday, Opec secretary general Mohammad Barkindo reiterated the group's role in bringing stability to the oil markets since its members struck a co-operation agreement in December 2016.

“No matter what challenges we may face, our efficacious and proven ... framework will continue to be the modus operandi for our joint success and help move us, step by step and day by day, closer to achieving our common objectives,” he said. “This nimble and measured approach will once again pay off.”

“We will continue monitoring these developments very closely in the days and weeks to come,” Mr Barkindo said.

Still, Jeffrey Halley, senior market analyst at Oanda, said the "uncomfortable fact is that Opec compliance is well above 100 per cent anyway, meaning they are pumping as much as they can, so even an announcement theoretically larger increase would not materially impact markets for more than the short-term".

"As the realities of the Ukraine-Russia situation bite once again, I intend to stick to my view that Brent crude will top $120 a barrel and could trade near to $130 a barrel. That will be the price of the world holding its nerve to cripple Russia’s economy."

Global oil demand is projected to rise by 4.2 million bpd this year, according to Opec’s latest monthly oil market report.