Oil prices experienced an uptick on Thursday, driven by concerns over potential supply disruptions linked to escalating tensions in the Russia-Ukraine conflict. However, a rise in U.S. inventories tempered the overall increase.
This week, prices gained momentum as Ukraine’s enhanced use of long-range U.S. weaponry against Russia heightened apprehensions that oil supplies from Moscow might face interruptions. Additionally, oil markets saw some buying interest after prices fell to their lowest levels in over a month last week. Nonetheless, worries about decreasing demand, particularly in light of U.S. inventory levels that grew more than anticipated, restricted overall gains.
As of 22:04 ET (03:04 GMT), Brent oil futures for January delivery increased by 0.4 percent, reaching $73.07 a barrel, while West Texas Intermediate (WTI) crude futures also rose by 0.4 percent, settling at $68.79 a barrel.
Tensions between Russia and Ukraine support oil prices
The rising tensions between Russia and Ukraine have provided significant support for oil markets, especially following the U.S. authorization for Ukraine to deploy long-range missiles. In response, Moscow has lowered its threshold for nuclear retaliation and issued warnings of a potentially severe escalation in the conflict.
On Wednesday, Ukraine launched a new series of Western-made missile strikes into Russia, which could elicit a more intense response from Moscow. A major concern for oil markets is Ukraine’s ongoing targeting of Russian energy infrastructure, which raises the risk of supply disruptions.
Read more: Saudi Arabia’s crude oil exports hit three-month high in September
U.S. inventory levels increase more than expected
Data from the U.S. Energy Information Administration revealed on Wednesday that U.S. oil inventories rose by 0.5 million barrels for the week ending November 15, exceeding expectations for a build of 0.4 million barrels. This marked the third consecutive week of inventory increases.
More troubling for 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. As a result, oil prices remained jittery amid prospects of rising supply and diminishing demand in the coming year, which some analysts predict could lead to a supply surplus.
According to Reuters, the Organization of Petroleum Exporting Countries and its allies (OPEC+) are considering further delaying production increases during their upcoming meeting on December 1.
Price stability amid ongoing conflict
On Wednesday, oil prices steadied as traders monitored the developments in the Russia-Ukraine conflict. However, reports of a notable rise in U.S. oil stockpiles put downward pressure on prices. Earlier this week, oil prices experienced slight increases due to fears of supply disruptions linked to potential escalations in the Russia-Ukraine war, particularly after Moscow hinted at possible nuclear retaliation in response to Ukrainian actions. Additionally, a temporary halt in production at Norway’s Sverdrup oil field had 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 West Texas Intermediate (WTI) crude futures held at $69.22 a barrel.
Recent price movements
On Tuesday, oil prices saw a modest rise, building on gains from the previous day, which were influenced by the production halt at Norway’s Johan Sverdrup oilfield. However, ongoing concerns about the escalating Russia-Ukraine conflict kept investors cautious. By 04:30 GMT, Brent crude futures for January delivery increased by 15 cents, or 0.2 percent, to $73.45 a barrel, while U.S. WTI crude futures for December delivery also rose by 15 cents, or 0.2 percent, to $69.31 a barrel. The more actively traded WTI January contract saw a similar increase of 13 cents, or 0.2 percent, reaching $69.30.
Production disruptions in Norway
Both oil benchmarks surged by over $2 a barrel on Monday after Equinor, Norway’s oil company, announced the suspension of output from its Johan Sverdrup oilfield due to a power outage. An Equinor spokesperson indicated that efforts to restart production were underway, but the timeline for full operations remained uncertain.
Kazakhstan’s oil output cuts
Additionally, Kazakhstan’s largest oil field, Tengiz, operated by Chevron, has cut production by 28 to 30 percent due to ongoing repairs, further tightening global oil supplies. The country’s energy ministry has stated that these repairs are expected to be completed by Saturday.
On another front, Russia carried out its most extensive airstrike against Ukraine in nearly three months on Sunday, causing substantial damage to Ukraine’s power infrastructure. Amid these developments, traders began shifting WTI positions to the January contract as the December contract neared its expiration on Wednesday.
Price fluctuations amid hostilities
Oil prices experienced a slight rise on Monday following a weekend characterized by intensified conflicts between Russia and Ukraine. However, this upward momentum was tempered by ongoing concerns about fuel demand in China, the world’s second-largest oil consumer, alongside predictions of a global oil surplus. By 05:02 GMT, Brent crude futures had increased by 29 cents, or 0.4 percent, to $71.33 a barrel, while U.S. WTI crude futures climbed by 18 cents, or 0.3 percent, to $67.20 a barrel.
Saul Kavonic, an energy analyst at MST Marquee, remarked that Russian oil exports have not yet faced significant disruptions. However, he cautioned that if Ukraine continues to target oil infrastructure, it could lead to rising prices in the market. Reports indicate that at least three refineries in Russia have either halted operations or reduced production due to substantial losses exacerbated by export restrictions, rising crude prices, and increased borrowing costs, according to various industry sources.
