The oil prices rose on Wednesday, as geopolitical premiums were reintroduced to the market in response to increased tensions between Russia & Ukraine.
Prices are rising despite data from the US Energy Information Administration that showed the stockpiles of oil in the US increased last week.
The tensions between Russia and Ukraine remain high, as Ukraine has now launched two attacks against the Kremlin.
The price of West Texas Intermediate Crude on the New York Mercantile Exchange at the time this article was written was $69.78 per barrel, an increase of 1.5%. Brent crude was trading at $73.83 a barrel on the Intercontinental Exchange, an increase of 1.4% over the previous close.
Oil traders also awaited with great anticipation the December 1 ministerial gathering of the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
OPEC+ will decide its policy on oil production. The cartel recently extended their voluntary production cuts by a full month until the end of December.
Ukraine and Russia exchange blows
The power grid of Ukraine was crippled by Russia’s attack on the weekend. It was the biggest assault in nearly three months.
Ukraine retaliated by using US ATACMS ATACMS missiles to strike the Russian border area on Tuesday.
Washington allowed Ukraine to use US made weapons to strike deep within Russian territory earlier.
Russia was not pleased with the move, as it warned that the conflict would escalate significantly.
In addition, Ukraine hit Russia on Wednesday using British cruise missiles. Moscow responded by launching an intercontinental missile early Thursday morning.
It is the first instance that Russia has used powerful missiles with a long range during the war. The conflict began over two years ago.
In a recent note, ING Group analysts stated that the oil industry faces two risks. The first is if Ukraine attacks Russian energy infrastructure. The second is the uncertainty of how Russia will respond to such attacks.
According to ANZ Research the recent increase in tensions has raised the volatility index of Brent oil prices to 35 % in October.
ANZ Research reported that money managers are reducing net-long positions of Brent and WTI.
Stockpiles in the US limit gains
The EIA announced late Wednesday that crude oil stocks in the US increased by 500,000 barrels during the week ending November 15.
Prices had initially fallen due to the bearish data that weighed on Wednesday’s sentiment.
According to the Energy Agency, gasoline inventories rose by over 2 million barrels in the last week.
ING analysts have added:
The gasoline stockpile was despite refiners cutting utilisation rates 1.2pp in a single week. The lower refinery activity has been more than offset due to a weaker implied demand.
Last week, US crude oil production remained at near-record levels of over 13 million barrels a day.
The world’s largest crude oil producer is Saudi Arabia.
ING Group stated that “However as we mentioned earlier this week, Iran’s pledge to cease stockpiling uranium counters some of geopolitical risks, potentially reducing supply risks associated with Iran before President-elect Trump enters office.”
Will OPEC+ increase the cuts again?
The OPEC+ ministerial gathering is fast approaching and the market has speculated whether the cartel will go ahead with a plan to increase production from January 1.
Fxempire analysts said that OPEC+ could delay production increases again, thereby halting the unwinding production cuts made in January.
James Hyerczyk said, in a recent report, that he is an analyst at Fxempire.
The group will meet on December 1 to discuss production strategies. Any decision to maintain the current production cuts may support prices.
OPEC’s decision will likely play a key role in determining the balance of the market by 2025, as the demand, particularly from China, has been low over the last few months.
This post Oil Prices Surge as Geopolitical Tensions Escalate in Russia-Ukraine War may be updated as new developments unfold.
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