Global oil markets faced upward pricing pressure on Monday as escalating geopolitical flashpoints in Eastern Europe, the Middle East and beyond stoked fears of supply disruptions. The rising tensions exacerbated already strained conditions in energy markets reeling from Russia’s invasion of Ukraine.
Brent crude, the international pricing benchmark, rose 39 cents to $85.82 a barrel in Asian trading. West Texas Intermediate, the U.S. standard, gained 40 cents to $81.03 a barrel.
The jumps reflected deepening unease over supply shortfalls. Military conflicts have proliferated worldwide, menacing oil production, refining and transportation networks. Simultaneously, lower U.S. rig counts signaled potential declines in domestic output.
“Intensifying geopolitical tensions, combined with increased attacks on energy infrastructure in Russia and Ukraine and diminishing hopes for a Middle East ceasefire, have heightened concerns over global oil supply availability,” said Hiroyuki Kikukawa, President at NS Trading, a subsidiary of Nissan Securities.
Over the weekend, Moscow launched a barrage of 57 missiles and drones targeting Kyiv and other Ukrainian cities, just days after the largest aerial assault on Ukraine’s energy grid since the war began. The strikes appeared to be retaliation for recent Ukrainian drone attacks on at least seven Russian oil refineries this month alone.
Ukraine’s tactics of striking deep within Russian territory have markedly altered the trajectory of the conflict. In response, the Kremlin has redoubled its efforts to degrade Ukraine’s power generation and distribution capabilities through heavy bombardment.
The turmoil has disrupted up to 12% of Russia’s total refining capacity, according to analysts at ANZ Research. “Damage to Russian refineries has intensified pressure on fuel markets, increasing demand for available crude shipments,” the firm stated.
Supply woes have been compounded by Indian refiners shunning Russian crude transported on tankers owned by PJSC Sovcomflot due to U.S. sanctions, further tightening global markets.
Simultaneously, violence has spiraled in the Israeli-Palestinian conflict. Over the weekend, Israeli forces besieged two Gaza hospitals amid heavy clashes, pinning down medical teams. The ensuing crisis prompted a warning from U.S. Secretary of State Antony Blinken that Israel risked “global isolation” if it attacked the Palestinian city of Rafah.
Tensions also flared in the Red Sea, where U.S. forces engaged and destroyed six Iranian-backed Houthi rebel drones after the group launched ballistic missiles at a Chinese oil tanker, U.S. Central Command reported.
While the short-term outlook remains bullish due to these flare-ups, some analysts struck a cautionary tone. A stronger U.S. dollar, which rose around 1% last week, has acted as a moderating force on crude prices.
Moreover, questions linger about longer-term demand trajectories amidst wider economic uncertainties. Last week, equities markets delivered mixed signals, with the technology-heavy Nasdaq posting modest gains while the Dow Jones Industrial Average and S&P 500 dipped slightly.
Ultimately, the tenuous state of geopolitical affairs will likely continue fanning volatility in energy markets beset by an accumulation of destabilizing friction points. As conflicts intensify across multiple fronts, safeguarding supply chains will prove an immense challenge.
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