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Oil Jumps over $2 as Ukraine Mobilises for War, WTI at Five-month Top

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March 3, 2014 2:37 PM EST

Brent and U.S. crude oil rallied more than $2 per barrel to multi-month highs on Monday, lifted by rising tension in Ukraine after Russian President Vladimir Putin declared he had the right to invade his neighbour.


A worker adjusts the valve of an oil pipe at Khurmala oilfield on the outskirts of the city of Arbil, in Iraq's Kurdistan region on 4 December, 2013 (Reuters.

Russia is the world's biggest oil producer and Ukrainian Prime Minister Arseny Yatseniuk said Moscow's move to use military force was a "declaration of war".

Putin secured permission from his parliament on Saturday to use military force to protect Russian citizens in Ukraine and told U.S. President Barack Obama he had the right to defend Russian interests and nationals, spurning Western pleas not to intervene.

Brent crude hit a session peak of $111.24 per barrel, its highest since January 2, and was up $1.48 at $110.55 by 0208 GMT.

U.S. crude futures jumped as much as $2.06 to $104.65 a barrel, the highest since September 23. They were later up $1.20 at $103.80.

"Oil markets are reacting on the potential that the situation could worsen," said Ben Le Brun, a market analyst at OptionsXpress in Sydney. "We don't see any fundamental impact on oil markets yet, and it is still very much sentiment driven."

"But I definitely suspect oil will move much higher, if it actually comes to war. U.S. crude could easily surpass $110 and a $120 target is not out of the question," said Le Brun.

19th CENTURY BEHAVIOR

President Barack Obama and the leaders of Britain, Germany and Poland expressed "grave concern" on Sunday over Russia's intrusion into Ukraine, which they called a breach of international law and a threat to international peace and security.

U.S. Secretary of State John Kerry, who will visit Kiev on Tuesday, condemned Russia's "19th century" behaviour and threatened visa bans, asset freezes and trade restrictions against Russia, following the seizure of the Ukrainian peninsula of Crimea.

The European Union, which depends on Russia for much of its natural gas and has close trade ties with its eastern neighbour, is unlikely to match the United States in threatening sanctions against Russia when its foreign ministers meet to discuss Ukraine on Monday, instead pushing for mediation between Moscow and Kiev.

The tensions come at a nervous time for markets as activity in China's factory sector slowed to an eight-month low in February, a government survey showed on Saturday, reinforcing signs of a modest slowdown in the world's No. 2 economy as demand weakens.

The situation in Ukraine pressured Asian stocks on Monday, forcing anxious investors to cut their exposure to riskier assets in favour of traditional safe haven bets such as the Japanese yen and Swiss franc.

"There is nothing much you can do to calculate the risk premium in the current situation. We just have to wait and see how it develops," said Le Brun.

(Photo: / )
A worker adjusts the valve of an oil pipe at Khurmala oilfield on the outskirts of the city of Arbil, in Iraq's Kurdistan region on 4 December, 2013 (Reuters.
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