Amid increased tensions between Russia and Ukraine, geopolitical premiums returned to the market on Wednesday, causing oil prices to rise.
Bearish statistics by the US Energy Information Administration, which revealed that the US’s oil stockpiles increased last week, are the reason for the price increase. Russia and Ukraine are still at odds after Ukraine launched two attacks targeting the Kremlin on Tuesday and Wednesday.
The New York Mercantile Exchange’s West Texas Intermediate crude price was up 1.5% at $69.78 a barrel at the time of writing. On the Intercontinental Exchange, the price of a barrel of Brent crude was $73.83, up 1.4% from the previous day’s close.
On December 1, the Organization of the Petroleum Exporting Countries and its partners held a ministerial conference, which oil dealers anxiously anticipated.
OPEC+ will decide the oil production policy. The cartel recently extended the voluntary reductions in production of 2.2 million barrels a day by one month, until the end of December.
Russia and Ukraine exchange blows
Russia crippled Ukraine’s power grid over the weekend with its largest attack in nearly three months. Ukraine used US ATACMS missiles to launch attacks in the Russian border zone on Tuesday in retaliation for this.
Washington had already allowed Ukraine to use US-manufactured weaponry to launch attacks deep into Russian territory. Russia responded negatively to the plan, asserting that it would significantly escalate the situation, as reported by the Kremlin.
According to a note from analysts at ING Group, the risk for oil is that Ukraine would target Russian energy infrastructure, and the second risk is that it is unclear how Russia will react to these strikes.
The volatility index for Brent oil prices increased to 35% in October due to the recent increase in tensions, according to ANZ Research. According to ANZ Research, money managers are reducing their net-long holdings in Brent and WTI.
Late on Wednesday, the EIA said that the week ending November 15 saw a 500,000-barrel increase in US crude oil inventories. Prices had first dropped on Wednesday as a result of the pessimistic statistics. Additionally, the energy department reported an increase in gasoline stockpiles of more than 2 million barrels last week.
Analysts from ING also added: Despite refiners cutting utilisation rates by 1.2 points per week, the gasoline build nevertheless occurred. Weaker suggested demand more than compensated for lower refinery activity.
Last week, the United States produced more than 13 million barrels of crude oil per day, which was close to record levels. This country is the world’s largest producer of crude oil.
But as was said earlier in the week, Iran’s promise to cease uranium stockpiling does mitigate some geopolitical risk, possibly lowering some of the supply risks associated with Iran before President-elect Trump takes office, according to ING Group.
Will OPEC+ continue to make cuts?
The market has been wondering if the cartel would proceed with its planned increase in output starting on January 1 as the OPEC+ ministerial meeting draws closer. According to analysts at FXEmpire, OPEC+ might postpone its output increase once more, which would prevent it from rewinding its January production restrictions.
FXEmpire analyst James Hyerczyk stated in a report that any decision to maintain the current production cuts might support prices, and the group is planning to meet on December 1 to review output measures.
Given the recent weak demand, especially from China, OPEC’s decision will likely significantly affect the market’s balance in 2025.
There is a chance that Ukraine may attack Russian energy infrastructure, and there is also a risk that Russia won’t know how to react to the attacks. Amid concerns over US President-elect Donald Trump‘s tariff threats, China unveiled trade-boosting policy measures, including support for energy imports.
In the meantime, the weak global demand for oil may force OPEC to postpone its output increases once again when it convenes on December 1. The group pumps approximately half of the world’s oil. The original aim was to progressively reverse output reduction from late 2024 to 2025.
