VINACHEM

Oil prices stabilized on Wednesday as traders monitored the evolving situation in the Russia-Ukraine conflict. However, reports of a significant increase in U.S. oil stockpiles exerted downward pressure on prices.

This week, oil prices experienced slight gains due to fears of supply disruptions stemming from a potential escalation of the Russia-Ukraine war, particularly after Moscow hinted at the possibility of nuclear retaliation in response to Ukrainian strikes. A temporary outage at Norway’s Sverdrup field had also provided support for prices, although production resumed on Tuesday.

Brent oil futures for January delivery held steady at $73.31 a barrel, while West Texas Intermediate (WTI) crude futures remained at $69.22 a barrel.

Focus on Russia-Ukraine tensions

The oil markets were closely monitoring potential supply disruptions that could arise from heightened tensions in the Russia-Ukraine conflict, especially following reports that the U.S. had authorized the use of long-range missiles by Ukraine. In response, Moscow has lowered the threshold for a nuclear response, causing unease among traders concerning the potential for further escalation.

Ukraine has consistently targeted Russian oil infrastructure, but so far, these actions have resulted in minimal disruptions to supply. Nevertheless, concerns about an intensifying conflict were somewhat alleviated when Russia’s Foreign Minister stated that the country would strive to prevent a nuclear war.

U.S. oil inventories show significant build

Oil markets were also unsettled by industry data indicating that U.S. oil inventories rose significantly more than anticipated in the week ending November 15. According to the American Petroleum Institute, oil stockpiles increased by 4.75 million barrels last week, much higher than the forecasted rise of 0.8 million barrels. This report often foreshadows similar trends in the official inventory data, which is set to be released later on Wednesday.

U.S. oil inventories have exceeded expectations for the past two weeks, raising concerns among traders about an increase in supply from the world’s largest oil producer. This trend has contributed to fears of an oil supply surplus heading into 2025, particularly as demand from major oil-importing countries weakens.

Recent price movements

On Tuesday, oil prices saw a modest uptick, continuing the gains from the previous day, which were influenced by a production halt at Norway’s Johan Sverdrup oilfield. However, concerns over rising tensions in the Russia-Ukraine conflict kept investors cautious. As of 04:30 GMT, Brent crude futures for January delivery rose by 15 cents, or 0.2 percent, to $73.45 a barrel, while U.S. WTI crude futures for December delivery also increased by 15 cents, or 0.2 percent, to $69.31 a barrel. The more actively traded WTI January contract saw a similar rise of 13 cents, or 0.2 percent, reaching $69.30.

Production disruptions in Norway

Both oil benchmarks experienced a surge of over $2 a barrel on Monday after Equinor, Norway’s oil company, announced a suspension of output from its Johan Sverdrup oilfield due to a land-based 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

In addition, Kazakhstan’s largest oil field, Tengiz, operated by Chevron, has reduced production by 28 to 30 percent due to ongoing repairs, further constricting global oil supplies. The country’s energy ministry has indicated that these repairs are expected to be completed by Saturday.

On another front, Russia launched its most extensive airstrike against Ukraine in nearly three months on Sunday, causing significant damage to Ukraine’s power infrastructure. Amid these developments, traders began shifting WTI positions to the January contract as the December contract approached its expiration on Wednesday.

Price fluctuations amid hostilities

Oil prices saw a slight increase on Monday following a weekend marked by intensified hostilities between Russia and Ukraine. However, this upward trend was tempered by ongoing concerns regarding fuel demand in China, the world’s second-largest oil consumer, along with predictions of a global oil surplus. By 05:02 GMT, Brent crude futures had risen 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, noted that Russian oil exports have yet to experience significant disruption. However, he cautioned that should Ukraine continue to target oil infrastructure, it could lead to rising oil prices in the market. In Russia, at least three refineries have either halted operations or cut production due to substantial losses intensified by export restrictions, rising crude prices, and increased borrowing costs, according to various industry sources.  – Source: economymiddleeast.com –