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The market is worried that the escalation of risks in Russia and Ukraine will disrupt supply, and international oil prices rose again on Wednesday. US light crude oil $Light Crude Oil - main 2204(CLmain)$ rose about 1.3% to US$113.4/barrel, hitting a new closing high since June 2014; WTI crude oil futures $ETFS WTI CRUDE OIL(CRUD.UK)$ rose 2.02% to US$116.75/barrel .

Goldman Sachs: Crude oil has not fully digested the risks of Russia and Ukraine

The International Energy Agency (IEA) announced on Tuesday that its member countries had agreed to release 60 million barrels of crude from its emergency reserves, but the move to ease fears of a global shortage sparked by risks from Russia and Ukraine appeared to backfire. Oil prices extended gains on Tuesday following the news, with prices climbing to their highest level in more than seven years.

Goldman Sachs said the geo premium for Russia-Ukraine risk remains higher than current oil prices. Goldman Sachs strategists led by Dominic Wilson noted, "The market may be underestimating the impact of tighter supply on oil pricing, which remains a key risk from escalating geopolitical factors - so we think the 'risk premium' could be larger here. ”

Goldman Sachs has previously said that as Russia struggles with payments for energy exports, only demand destruction will prevent oil prices from rising to $115 next month. "Commodities markets need to reflect not only these difficulties in paying for Russian exports, but also the risk that Russian commodities will eventually be restricted by the West," said the investment bank strategist.

On the other hand, analysts at Goldman Sachs said the market may have begun to overestimate the potential for geopolitical factors to significantly alter the Fed's monetary tightening program.

S&P Global Energy Markets analyst Marshall Steeves said WTI could return to its 2008 high of $146 a barrel if the Russian-Ukrainian risks escalated further and threatened Russian exports, though "as prices start from here" Up, there could be demand destruction.” For now, “Oil prices above $100 are likely to persist as long as the geopolitical factors remain.”

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Global oil demand is estimated at 100 million barrels per day. According to the IEA's monthly oil market report released in February, Russia's oil production in January was about 10.04 million bpd, slightly below its target level of 10.12 million bpd.

Not all Russian production will be capped, but some oil buyers are reluctant to buy Russian oil, leading to a loss of 2 million to 3 million barrels a day of supply, said Michael Lynch, president of Strategic Energy and Economic Research. Given this, the scale of the reserve release is "not bad".

But the oil market’s reaction indicated that it expects “greater losses from Russia, especially if Russian-Ukrainian risks escalate. Traders believe the announcement of the oil release could herald greater policy constraints and greater supply losses.” He said. The release of 60 million barrels would be "severely insufficient" in this case, he said.

Additionally, compounding the problem, U.S. and global inventories are already at multi-year lows. At a meeting on Tuesday, IEA ministers noted that even before the Russian-Ukrainian risk, global oil markets were tight, with commercial inventories at their lowest levels since 2014 and limited ability of producers to provide additional supply in the short term.

However, taking history as a guide, crude oil futures may fall sharply in the long run. In the past three emergency releases from the U.S. Strategic Petroleum Reserve in 1991, 2005 and 2011, oil has trended lower over the next six months to a year.

In 1991, geopolitical factors boosted crude oil prices, but after the emergency release of U.S. reserves, crude oil fell nearly 41% in a year.

Crude prices fell in the weeks and months that followed after Hurricane Katrina devastated oil production on the Gulf Coast in 2005, before rebounding to a modest 2.4% gain a year later.

Crude prices fell 12.4% 12 months after the Paris-based International Energy Agency announced in 2011 that its member countries would release reserves of a similar size during the geo-risk period, showing some resilience in the short-term after the announced drawdown.

To be sure, with the Russian-Ukrainian risks increasingly uncertain, it is unclear how crude oil futures will perform this time around. Energy analysts have warned that things could get worse before they get better in Russia, one of the world's largest suppliers of oil and gas.