Finance

Energy prices surge as Russian invasion of Ukraine stokes fears of global shortages | commodities

Oil and gas prices surged on Thursday and global stock markets fell sharply after Russian forces invaded Ukraine.

Brent crude hit $105 a barrel for the first time since August 2014, following a rise of more than 8% on international energy markets. The increase signaled a further rise on garage forecourts to record-breaking retail price for unleaded petrol of more than £1.55 a litre.

The price of British gas for next-day delivery jumped 40% to £280 per therm as the invasion stoked fears of a disruption to global energy supplies.

There was a broad sell-off of shares across Europe, and banks with big operations in Russia were especially hard hit following moves by governments across the continent and in the UK to impose sanctions on Russian banks and wealthy Russian individuals.

The FTSE 100 in London fell almost 250 points to 7,257, or 3.2%, by late morning on Thursday, while Germany’s DAX, France’s CAC and Italy’s FTSE MIB were all down 5%, while Russia’s MOEX plunged 33% when trading was resumed following a temporary suspension.

Thirty-one Russian companies are traded on the London Stock Exchange. State-owned banks Sberbank and VTB, along with state-backed oil and gas producers Gazprom and Rosneft have secondary listings in the UK while their primary listings remain in Moscow.

Sberbank lost 75% of its value and VTB fell almost 22%. Gazprom, the mainly state-owned Russian energy company that trades some of its shares in London, was down 36%. Rosneft, the oil major which is 20%-owned by BP, dropped 23% and Lukoil has down nearly 44%.

The Anglo-Russian miner Polymetal was the top faller on the FTSE 100, down 37%, with the Russian mining group Evraz in second place, down nearly 30%.

Russ Mould, investment director at the stockbroker AJ Bell, said the London exchange fell less than other European bourses due to the large weighting towards the energy sector. He said oil giants BP and Shell stood to benefit from the surge in oil prices through $100 a barrel.

Russia is the world’s second largest oil producer and sells most of its crude to European refineries. It is also the largest supplier of natural gas to Europe, providing about 35% of its supply.

Oil prices have surged more than $20 a barrel since the start of 2022 as the Ukraine crisis went unresolved, with fears that the US and Europe would impose sanctions on Russia’s energy sector, disrupting supplies, should the situation escalate.

The benchmark Dutch gas futures price gained as much as 41% to €125 per megawatt hour, the highest level since just before Christmas, according to Bloomberg, helped the cost charged to households and businesses in the UK.

Meanwhile, German power for March delivery soared as much as 31%, reaching €260 per megawatt hour.

Mold warned that the surge in the oil price was “terrible news for businesses and consumers”, and would serve to further Stoke inflation.

“Not only will energy bills keep going up, but food prices look set to jump even higher. Ukraine and Russia are both big food suppliers and any disruption to supplies will force buyers to seek alternative sources, which could jack up prices.

“Investor sentiment was already fragile because of rising inflation and the upwards direction of travel for interest rates, but confirmation of war and the associated alarming news headlines around the world are likely to see equity markets go through a difficult period for longer than people might have previously expected.”

Russia and Ukraine are also large producers of metals, which analysts said could be in short supply over the coming months unless the war ends quickly. Russia produces 6% of the world’s aluminium, and 7% of its mined nickel.

The three-month aluminum price on the London Metal Exchange jumped to an all-time high of $3,443 a ton, and later traded 4.2% higher at $3,428.5. Nickel climbed 3.4% to $25,220 a ton, after hitting its highest level since May 2011 to $25,240.

Soni Kumari, an analyst at Melbourne-based ANZ bank, said: “Aluminium and nickel are energy-intensive metals and higher energy prices would further push the cost curve. This raises risk of more European smelters suspending their production or postponing their restart plans.”

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