Oil pushes to $89 a barrel as Ukraine tensions simmer

The price of crude oil is within sight of a seven-year high

Amid the widespread shortages of all types of energy, including gas and renewables, this winter, the price of oil has taken on an ever-increasing significance for business costs because more electricity is now being generated by oil-powered stations. 

The crisis over Ukraine has helped push up prices of crude oil to almost $89 a barrel on Wednesday, in a further sign that inflation pressures for Irish businesses and households is not going away any time soon. 

It takes about two weeks for any sustained changes to the global crude oil price to pass though to the costs of higher or lower distilled petrol at Irish forecourts.

Amid the widespread shortages of all types of energy, including gas and renewables, this winter, the price of oil has taken on an ever-increasing significance for business costs because more electricity is now being generated by oil-powered stations.     

The price of home heating oil which has already spiked by over 53% in the past year is a further cause for worry for people watching vulnerable households who have the most to lose from energy costs. 

Meanwhile, the future price of wholesale gas — a key fuel that accounts for over half the power generated on the all-Ireland grid this month — has continued to trade at record levels for the next several months, according to contracts for delivery this summer. 

Prices on the so-called Dutch TTF futures contracts on Wednesday morning, for European gas to be delivered in June, was quoted at €82.50 per Kilowatt hour — which is three times the price of last June. 

Economists, including the Central Bank, are looking closely at whether energy-driven inflation will spill over to the wider economy. 

Irish inflation which had risen to an annual 5.5% in December, the highest for two decades, is also being repeated in many other countries, including Britain and Canada which have set new 30-year records.

The Central Bank said earlier this week it expects inflation to remain at an elevated level before starting to fall back later in the year. It also said that an invasion of Ukraine or a lessening of tensions would influence those projections. Adding to the problem, is tension in other parts of the world. 

"Anxiety over potential supply disruptions in the Middle East and Russia is providing bullish fodder for the oil market," said Stephen Brennock of oil broker PVM. 

Crude oil rose to around $89 a barrel on Wednesday, within sight of a seven-year high. 

"The market downside is limited due to heightened tensions between Russia and Ukraine and the threat to infrastructure in the UAE," said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

US President Joe Biden said on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine. On Monday, Yemen's Houthi movement launched a missile attack on a United Arab Emirates base.

The higher price of crude oil appears to be driving London's Ftse-100 higher.

“Despite some wobbles throughout the day the Ftse-100 has managed to hold on to most of yesterday’s rebound," said Chr.is Beauchamp, chief market analyst at online broker IG.   

"Signs of a recovery in metals and oil have boosted the relevant sectors in the index, while higher yields have done their bit to lift bank stocks once again," Mr Beauchamp said. 

Additional reporting Reuters