World oil prices have spiked to their highest levels since 2008, rising more than 30% since the war in Ukraine started. Apart from boosting inflation this has increased the risk of recession and contributed to another leg down in share markets.

Why the spike in oil prices?

The spike in oil prices this was week was driven by reports the US and Europe were moving to ban or reduce Russian energy imports. This has since been confirmed with the US banning the import of Russian energy products, the UK banning Russian oil imports and the European Union announcing a plan to reduce Russian gas imports by two thirds this year. It comes when energy shippers and companies are self-sanctioning Russia anyway and Russia could itself cut off supplies. This is significant as Russia accounts for 11% of global oil and 17% of global gas production. It’s all come at a time when the global oil market is tight after years of underinvestment and there has been a strong recovery in energy demand post Covid restrictions. It’s an amazing turnaround as less than two years ago near the start of the pandemic oil prices went briefly negative (although it doesn’t show up in the previous chart which uses monthly data).

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