Brent crude soared near $130/bbl on March 7, its highest since 2008, as the U.S. and European allies mull a Russian oil import ban and delays in the potential return of Iranian crude to global markets fueled tight supply fears.

Brent crude futures jumped $10.88, or 9.2%, to $128.99/bbl by 0723 GMT, while WTI crude in the U.S. climbed $9.80, or 8.5%, to $125.48.

In the first few minutes of trade on March 7, both benchmarks spiked more than $10/bbl to their highest since July 2008 with Brent at $139.13 and WTI at $130.50.

March 7 intraday highs are near record levels seen for both contracts in July 2008 when Brent hit $147.50/bbl and WTI touched $147.27.

The United States and European allies are exploring banning imports of Russian oil, U.S. Secretary of State Antony Blinken said on March 6, and the White House coordinated with key Congressional committees moving forward with their own ban.

“The scramble for additional barrels to fill what could balloon to a 3-4 mb/d Russian export deficit will undoubtedly move into warp speed this week,” RBC Capital's Helima Croft said in a note.

“This could prove to be a tall order as immediate OPEC spare capacity currently rests with Saudi Arabia, UAE, Kuwait, and Iraq, and we estimate that these four countries could only bring on between 2.0-2.5 mb/d in the next 30-60 days,” she said, adding that it remains to be seen how many countries will join a formal Russian oil embargo.

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Global oil prices have spiked more than 60% since the start of 2022, along with other commodities, raising concerns about world economic growth and stagflation. China, world’s No. 2 economy, is already targeting a slower growth of 5.5% this year.

Fuel prices have surpassed 2008 records with U.S. gasoline at a high of $3.890 per gallon and heating oil futures at $4.237 per gallon.

Analysts at Bank of America said if most of Russia’s oil exports are cut off, there could be a 5 million barrel or larger shortfall, and that means oil prices could double from $100/bbl to $200/bbl, while JP Morgan analysts said this week oil could soar to $185/bbl this year.

“If the supply tightness does not ebb, oil may exceed way above its record high,” Howie Lee, an economist at Singapore’s OCBC bank said.

“In the worst case scenario of a complete sanction on Russia’s energy exports, I won’t be surprised to see Brent trading above $200,” he added.

Russia is the world's top exporter of crude and oil products combined, with exports at around 7 million bbl/d, or 7% of global supply. Some volumes of Kazakhstan's oil exports from Russian ports have also faced complications.

Despite the oil price surge, U.S. energy firms cut the number of operating oil rigs last week, underscoring supply concerns. In Libya, the closure of the El Feel and Sharara oil fields resulted in the loss of 330,000 bbl/d, the National Oil Corp. (NOC) said on March 6, more than 25% of its output in 2021.

Iran

Talks to revive Iran’s 2015 nuclear deal with world powers were mired in uncertainty on March 6 following Russia’s demands for a U.S. guarantee that the sanctions it faces over the Ukraine conflict will not hurt its trade with Tehran. China has also raised new demands, according to sources.

In response to Russia’s demands, U.S. Secretary of State Blinken said on March 6 that the sanctions imposed on Russia over its Ukraine invasion have nothing to do with a potential nuclear deal with Iran.

“Iran was the only real bearish factor hanging over the market but if now the Iranian deal gets delayed, we could get to tank bottoms a lot quicker especially if Russian barrels remain off the market for long,” said Amrita Sen, co-founder of Energy Aspects, a think tank.

Eurasia Group said fresh Russian demands could disrupt nuclear talks although it still kept the odds of a deal at 70%.

Iran will take several months to restore oil flows even if it reaches a nuclear deal, analysts said. Read full story

Separately, U.S. and Venezuelan officials discussed the possibility of easing oil sanctions on Venezuela but made scant progress toward a deal in their first high-level bilateral talks in years, five sources familiar with the matter said, as Washington seeks to separate Russia from one of its key allies.