Oil prices experienced a slight uptick on Tuesday, building on the gains from the previous day, which were fueled by a production halt at Norway’s Johan Sverdrup oilfield. However, investors remained wary due to escalating tensions in the Russia-Ukraine conflict.
As of 04:30 GMT, Brent crude futures for January delivery increased by 15 cents, or 0.2 percent, reaching $73.45 a barrel. Simultaneously, U.S. West Texas Intermediate (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 13-cent increase, or 0.2 percent, bringing its price to $69.30.
Production disruptions in Norway
Both benchmarks surged by over $2 a barrel on Monday after Equinor, Norway’s oil company, announced a suspension of output from its Johan Sverdrup oilfield—Western Europe’s largest—due to a power outage on land. An Equinor representative indicated that efforts to restart production were underway, although it remained uncertain when operations would fully resume.
Kazakhstan’s oil output cuts
Additionally, Kazakhstan’s largest oil field, Tengiz, which is operated by Chevron, has cut oil production by 28 percent to 30 percent due to ongoing repairs, further tightening global oil supplies. The country’s energy ministry stated that repairs are expected to conclude by Saturday.
On another front, Russia conducted its most extensive airstrike on Ukraine in nearly three months on Sunday, resulting in significant damage to Ukraine’s power infrastructure. Amidst these developments, traders began transitioning WTI trades to the January contract ahead of the December contract’s expiration on Wednesday.
Recent price fluctuations
Oil prices saw a modest rise on Monday, following a weekend marked by increased hostilities between Russia and Ukraine. However, this upward momentum was dampened by persistent concerns regarding 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 climbed by 29 cents, or 0.4 percent, reaching $71.33 a barrel. U.S. West Texas Intermediate crude futures also rose by 18 cents, or 0.3 percent, to $67.20 a barrel. Over the weekend, Russia’s significant airstrike on Ukraine inflicted extensive damage on the country’s electrical infrastructure.
Saul Kavonic, an energy analyst at MST Marquee, pointed out that Russian oil exports have so far shown limited impact. However, he cautioned that if Ukraine were to target further oil infrastructure, it could lead to increased oil prices in the market. In Russia, at least three refineries have had to either suspend operations or reduce output due to substantial losses exacerbated by export restrictions, rising crude prices, and heightened borrowing costs, as noted by several industry sources.
Supply and demand dynamics
Last week, both Brent and WTI prices declined by more than 3 percent due to disappointing economic data from China, coupled with forecasts from the International Energy Agency predicting that global oil supply would exceed demand by over 1 million barrels per day by 2025, even with OPEC+ production cuts in place. Data released on Friday indicated that China’s refinery throughput decreased by 4.6 percent in October compared to the previous year, coinciding with a slowdown in factory output growth.
Concerns over U.S. interest rates
Investor concerns also center around the speed and extent of interest rate reductions by the U.S. Federal Reserve, contributing to uncertainty in global financial markets. In the U.S., the number of active oil rigs fell by one to 478 last week, marking the lowest count since the week ending July 19, according to data from Baker Hughes.
Impact of China’s economic recovery
On Friday, oil prices dropped as signs of weakness in China’s economic recovery impacted demand from the world’s largest crude importer. The anticipated rise in supplies from the U.S. and OPEC+, along with skepticism regarding China’s economic rebound, continues to shape oil prices this week. Brent oil futures for January delivery declined by 1.06 percent, closing at $71.79 per barrel, while West Texas Intermediate (WTI) fell by 1.02 percent, ending at $68 per barrel, as of 6:06 GMT. For the week, Brent is forecasted to decline by over 2.7 percent, while WTI is expected to drop by more than 3.3 percent.
Long-term demand concerns
Concerns about demand in China remain significant. Although oil prices have stabilized around the $71.00 level this week, a lack of supportive factors suggests that a price recovery will be slow in the near term. In October, Chinese oil refiners processed 4.6 percent less crude compared to the previous year, marking the seventh consecutive month of decline. This downturn is attributed to the closure of several plants and reduced operating rates among smaller independent refiners, according to the National Bureau of Statistics.
