Russia’s invasion of Ukraine will likely exacerbate rising gas prices and high inflation, with no ceiling in sight until there’s an economic downturn or severe drop in demand, oil and energy market strategists say.
Moscow’s wide-scale military invasion on Thursday quickly affected global energy prices and acted as a twist of the knife for Americans whose pocketbooks have already been reeling from the rising costs of everyday goods.
Within hours of Russia’s invasion, financial markets dropped and oil prices topped $100 per barrel for the first time since 2014. Russia is the world’s third-largest oil producer and second-largest oil exporter.
After President Biden announced new economic sanctions on Russia, oil prices rebounded in the U.S. to end the day slightly below $100 per barrel.
The Brent Crude oil index, a global benchmark, reached $105 per barrel by early Thursday before finishing the day at $99.08 or 2.3% higher.
The Russian invasion of Ukraine also caused a tumultuous day on Wall Street. The Dow Jones dropped 800 points before clawing back to close up 92 points, or 0.3%, while the S&P 500 and the Nasdaq 100 recovered enough ground to finish up 1.5% and 3.4%, respectively.
European markets tumbled around 3%, with Germany’s performing the worst with a 4% slide, while Asian markets saw drops from 1% to 3%.
Russia’s markets had to suspend trading as stocks plunged as much as 45% before closing 33% down, and the ruble dropped to a record low against the dollar.
“When oil triggers a recession, that’s when demand will drop,” said Louis Navellier, chairman and founder of the investment firm Navellier & Associates. “Oil does ripple its way through the economy and supply chain. Inflation is going to be out of control.”
Inflation in the U.S. has already reached a 40-year high, hitting an annual rate of 7.5% in January. That trend is expected to persist, as the cost of gas promotes additional rises in vital aspects of life like food and housing.
Analysts have said it’s difficult to predict a peak price point of oil, which was already forecasted to extend well beyond $100 per barrel and further increase prices at the pump before Russia’s attack. Mr. Navellier said oil could peak around $115 per barrel in the summer, when prices are the highest.
As of Thursday, the national average for a gallon of gas in the U.S. was $3.54, up from an average of $3.30 a month ago and $2.66 a year ago.
Dan Dicker, an oil and energy markets analyst, said $120 per barrel is a “very high probability.” But he had a far more daunting long-term outlook: $150 over the next 2 years, which would likely mean gas prices north of $6 per gallon.
“This is a fundamental oil market that was always getting way above $100 per barrel,” Mr. Dicker said. “In the end, Ukraine and whatever supply problems it may bring will only act as fuel to this inflation-fueled fire. Oil is a global commodity. If there’s a problem in Iraq, or a problem in South Dakota, or a problem in Canada, it’s going to be reflected in global oil prices.”
One energy cost that may be largely insulated from inflation and rising oil prices that many Americans use to heat their homes is natural gas. That’s because it’s less of a global energy market. Europe, however, can expect to get hit hard with higher prices for natural gas because of the continent’s reliance on Russian exports.
As the Biden administration grappled with a response to Russia’s escalating aggression toward Ukraine in recent months, the White House has been unable to stave off record inflation levels and has conceded that gas prices will continue to rise.
President Biden has largely avoided directly penalizing Russia’s energy production, which Europe heavily relies on. Mr. Biden did impose sanctions Wednesday on the company behind the Nord Stream 2 pipeline, a major completed natural gas project that was recently halted from coming online by Germany.
During remarks at the White House on Thursday announcing new economic sanctions against Russia, Mr. Biden urged U.S. companies against taking advantage of the geopolitical crisis with artificial price hikes.
“American oil and gas companies should not — should not — exploit this moment to hike their prices to raise profit,” Mr. Biden said. “I will do everything in my power to limit the pain American people are feeling at the gas pump.”
Mr. Biden said he will release additional reserve barrels “as conditions warrant.”
The White House has contended that all options are on the table. But due to Europe’s reliance on Russia’s oil and natural gas production, in addition to escalating energy costs and inflation here at home, analysts have considered U.S. sanctions against Russia’s energy sectors off the table.
That means the tools in Mr. Biden’s arsenal to cool down gas prices are extremely limited, said Bill Baruch, president and founder of futures and commodities brokerage firm Blue Line Futures.
“I don’t think they have any tools at this point,” Mr. Baruch said. “They need to be in favor of new drilling, new policies that are going to allow, or encourage or incentive, producers to bring production back online.”
But even if Mr. Biden rapidly accelerated the pace of new drilling projects, Mr. Baruch said, it would likely take six months to a year for Americans to feel any sort of financial relief. He criticized Mr. Biden for releasing oil from the Strategic Petroleum Reserve in November to try and lower prices because the effort had little or no impact, other than taking away “future ammunition if it gets worse,” Mr. Baruch said.
“The only thing that might help for higher prices is higher prices,” Mr. Baruch said. “I don’t think we’re going to have a top in this market until there is a real pain felt.”
• Tom Howell Jr. contributed to this report.
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.
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