Crude broke through the $110 mark as Russia supplied few alternatives

On Wednesday (March 2), crude oil futures continued to rise strongly, soaring all the way above $110, extending the rally
since the outbreak of the military conflict between Russia and Ukraine a week ago.
The imposition of sanctions on Russia by Western countries led by the United States and the withdrawal of a number of oil and gas giants from Russian oil assets have led market participants to expect global crude oil supply to remain tight
in the coming months.

By the close, the West Texas Intermediate (WTI) crude (WTI) contract, the most actively traded on the New York Mercantile Exchange (NYMEX), was up $7.
19 or 7% at $110.
60 a barrel
.
It hit an intraday
high of $112.
51.

Brent crude futures, the global benchmark, for May ended up $7.
96, or 7.
6 percent, at $112.
93 a barrel
.
The intraday high hit $113.
94 was very large on Wednesday (March 2), with Brent closing at its highest closing price since June 2014 and WTI crude hitting its highest closing price
since May 2011.

Crude has rallied impressively over the past week, rising more than 15 percent in just three trading days this week as Western countries imposed sweeping sanctions on Russia, including cutting off several Russian banks from SWIFT's global financial settlement system, aimed at hitting the Russian economy
hard.

While the U.
S.
has so far not explicitly targeted Russia's energy sector, financial sanctions have severely disrupted Russia's ability to export
.
Russia is the world's top three crude oil producer, producing more than 10 million barrels of crude oil per day, equivalent to about
10% of global production.
Russia exports between 4 million and 5 million barrels of crude oil per day, making it the second-largest crude exporter
after Saudi Arabia.

Analysts noted that such a relentless rise in the crude oil market appears to be pricing
in at least a partial disruption in Russian crude exports.

It is unlikely that the tight supply and demand situation will be eased in the short term by raising supply
.
The OPEC alliance's decision on Wednesday to raise crude production by 400,000 b/d in April did not echo calls from countries like the United States to raise production faster
.

In fact, the OPEC alliance is likely to miss even its 400,000 b/d production increase target, as insufficient infrastructure investment in several member countries limits capacity
.

Global crude oil demand has largely returned to pre-pandemic levels due to limited supply growth, forcing some major consumer countries to tap into strategic reserves to fill the gap
.
This week, the U.
S.
chairs a meeting of member states at the International Energy Agency that decided to release 60 million barrels of strategic reserves, of which the U.
S.
will release 30 million barrels
.
The market sees this as a drop in the bucket
.
Because the global consumption is as high as 100 million barrels a day
.

Although the United States has not yet imposed sanctions on Russian crude, traders have steered clear of Russian crude because of concerns about potential sanctions and payment issues
.
Russia's flagship Urals crude is discounted as much as $18 a barrel, but potential sellers are still reluctant to sell
.
At the moment, Russian oil trade appears to be in chaos, as producers delay sales and importers reject Russian cargoes
.

On Wednesday (March 2), Trafigura said it had frozen its investments
in Russia.
Many other oil majors have also announced plans to exit investments in Russia, including ExxonMobil, BP and Shell
.

Meanwhile, U.
S.
crude inventories continued to decline
.
In Cushing, Oklahoma, crude inventories fell to their lowest level
since 2018.
U.
S.
strategic crude oil reserves also fell to their lowest level
in nearly 20 years.

The U.
S.
government said on Wednesday it was "very open" to the possibility of sanctions on Russian oil and gas, adding further fuel to the fire
.
Analysts say potential U.
S.
sanctions could push prices higher until consumers start voting with their feet to say no
to high oil prices.

Goldman Sachs believes that the only mechanism that can currently achieve a balance between supply and demand for crude oil may be to stifle demand
through high prices.