Oil Prices Rise Amid Supply Concerns and Geopolitical Tensions

Oil Prices Rise Amid Supply Concerns and Geopolitical Tensions

Oil prices climbed near a one-week high on Wednesday, driven by worries about supply disruptions in Russia and the United States. The market also awaited clarity on sanctions as Washington attempted to broker a deal to end the war in Ukraine.

Brent futures rose 20 cents, or 0.3%, to settle at $76.04 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 40 cents, or 0.6%, to settle at $72.25. This marked the highest close for both crude benchmarks since February 11.

Supply disruptions: Russia's Caspian Pipeline Consortium (CPC) oil flows were reduced by 30-40% on Tuesday after a Ukrainian drone attack on a pumping station. This translates to a loss of 380,000 barrels per day of market supply. Additionally, cold weather in the U.S. threatened oil supply, with the North Dakota Pipeline Authority estimating production in the state would decline by as much as 150,000 bpd.

Russian President Vladimir Putin suggested the CPC attack might have been coordinated with Ukraine's Western allies. U.S. President Donald Trump denounced Ukrainian President Volodymyr Zelenskiy as "a dictator without elections" and urged him to move fast to secure peace.

There is speculation that the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia and Kazakhstan may decide to delay their planned supply increase in April.

However, analysts at Goldman Sachs believe that any easing in sanctions against Russia is unlikely to bring a significant increase in oil flows. They believe that Russian crude oil production is constrained by its OPEC+ 9 million b/d production target rather than current sanctions.

Meanwhile, in the Middle East, Israel and Hamas will begin indirect negotiations on a second stage of the Gaza ceasefire deal, which could weigh on oil prices by reducing the risk of supply disruption.

Tariffs announced by the Trump administration could also dent oil prices by raising the cost of consumer goods, weakening the global economy, and reducing fuel demand. Worries about European and Chinese demand are also helping keep prices in check.

The market is also waiting for U.S. oil inventory data from the American Petroleum Institute (API) trade group later on Wednesday and the U.S. Energy Information Administration (EIA) on Thursday. These reports will come out one day later than usual due to the U.S. Presidents' Day holiday on Monday. Analysts forecast energy firms added about 2.2 million barrels of crude to U.S. stockpiles during the week ended February 14. If correct, that would be the first time energy firms added crude into storage for four weeks in a row since April 2024.