Energy Prices Soar as War Risk Premium Returns

The energy market has seen a significant shift in recent weeks, with prices rising due to concerns over war and global supply. The ICE Front-month Brent price traded at a high of $101 this week, up from $70 at the end of June. Meanwhile, NYMEX Front-month WTI rallied from ~$67 to a high of ~$93.

The war risk premium, which had been squeezed out of the market in May and June, has returned with a vengeance in July. This is reflected in the prices of various energy commodities, including NYMEX Front-month heating oil, which has soared to new heights. Even on an inflation-adjusted basis, today's prices are high.

The world is short of oil refinery capacity, with ~50% of Russian capacity offline due to sanctions. Middle East refineries have delivery issues, while US refineries are running flat out. The last major US refinery was built in 1977, and the industry is struggling to keep up with demand.