Oil prices increased on Friday, marking a positive week as heightened concerns surrounding the Russia-Ukraine conflict led traders to assign a larger risk premium to crude.
Supply disruptions in Norway, coupled with a brief dip in the value of the dollar, also contributed to the rise in oil prices earlier in the week. Additionally, reports indicated that the Organization of Petroleum Exporting Countries and its allies (OPEC+) were likely to defer a planned production increase.
The heightened risk premium allowed oil prices to largely overlook a larger-than-expected rise in U.S. inventories. By 20:44 ET (01:44 GMT), Brent oil futures for January delivery rose 0.4 percent to $74.54 a barrel, while West Texas Intermediate (WTI) crude futures increased by 0.5 percent to $70.10 a barrel. Both contracts recorded gains of between 4 percent and 5 percent for the week.
Russia-Ukraine tensions drive oil gains
This week’s oil price increases were significantly influenced by concerns about supply disruptions due to the ongoing Russia-Ukraine war, especially as Ukraine began utilizing Western-supplied long-range missiles. In response, Russia has lowered its threshold for nuclear retaliation.
Reports emerged on Thursday indicating that Russia launched a hypersonic medium-range ballistic missile at a Ukrainian target, with President Vladimir Putin cautioning that more strikes could follow. The oil markets are particularly anxious about the potential for Ukraine to damage Russian energy infrastructure, which could disrupt oil production and tighten global supplies. This concern has been a crucial factor supporting crude prices.
Additionally, oil prices benefitted from some bargain buying after experiencing sharp declines in October due to worries about falling demand, particularly from major importer China.
OPEC+ may postpone production increase
According to Reuters, OPEC+ is contemplating delaying a planned increase in production to next year amid ongoing concerns about weakening demand and declining prices. Initially, the cartel intended to start ramping up production by late 2024, but plans have been consistently postponed throughout the year. A decision on this matter is expected when OPEC+ convenes on December 1.
Analysts predict that increased supply from non-OPEC sources could exert further pressure on oil prices in the upcoming year, raising the possibility of a supply surplus, which has made OPEC cautious about boosting production.
Oil prices respond to inventory changes
On Thursday, oil prices saw an uptick driven by fears of potential supply disruptions related to escalating tensions in the Russia-Ukraine conflict. However, a rise in U.S. inventories tempered these gains.
This week, prices gained traction as Ukraine’s increased deployment of long-range U.S. weaponry against Russia heightened fears that oil supplies from Moscow could be interrupted. Furthermore, after experiencing steep declines to their lowest levels in over a month last week, oil markets saw renewed buying interest. However, concerns over declining demand—especially in light of U.S. inventory levels that rose more than expected—restricted overall price increases.
By 22:04 ET (03:04 GMT), Brent oil futures for January delivery had risen by 0.4 percent, reaching $73.07 a barrel, while WTI crude futures also climbed by 0.4 percent, settling at $68.79 a barrel.
U.S. inventory levels rise more than anticipated
Data from the U.S. Energy Information Administration indicated on Wednesday that oil inventories in the U.S. increased by 0.5 million barrels for the week ending November 15, surpassing expectations of a 0.4 million barrel build. This marked the third consecutive week of rising inventories.
Of particular concern to oil markets was a nearly 2.1 million barrel increase in gasoline inventories, raising fears that fuel demand in the U.S. may be weakening as winter approaches. Consequently, oil prices remained volatile amid expectations of increasing supply and decreasing demand in the coming year, which some analysts warn could lead to an oversupply.
As reported by Reuters, OPEC+ is considering further delays to production increases in their upcoming meeting on December 1.
Price stability amid ongoing conflict
On Wednesday, oil prices steadied as traders kept a close watch on developments in the Russia-Ukraine conflict. However, news of a significant rise in U.S. oil inventories applied downward pressure on prices. Earlier in the week, oil prices experienced slight increases due to concerns about supply disruptions linked to the Russia-Ukraine war, particularly after Moscow hinted at possible nuclear retaliation.
Additionally, a temporary halt in production at Norway’s Sverdrup oil field initially supported prices, although production resumed on Tuesday. As of 20:34 ET (01:34 GMT), Brent oil futures for January delivery remained stable at $73.31 a barrel, while WTI crude futures held at $69.22 a barrel.
Production disruptions in Norway
On Monday, both oil benchmarks experienced a surge of over $2 a barrel following the announcement from Equinor, Norway’s oil company, regarding the suspension of output at its Johan Sverdrup oilfield due to a power outage. An Equinor representative mentioned that while efforts to restart production were in progress, the timeline for returning to full operations remained uncertain.
Kazakhstan’s oil output cuts
In addition, Kazakhstan’s largest oil field, Tengiz—operated by Chevron—has implemented production cuts of 28 to 30 percent as ongoing repairs continue, further constraining global oil supplies. The country’s energy ministry has indicated that these repair activities are anticipated to conclude by Saturday.
In a related development, Russia launched its most extensive airstrike against Ukraine in nearly three months on Sunday, resulting in significant damage to Ukraine’s power infrastructure. In light of these events, traders began shifting their WTI positions to the January contract as the December contract approached its expiration on Wednesday.
