Athira Sethu
Kochi, 18 November 2024
As tensions flared between Russia and Ukraine over the weekend, oil prices climbed on Monday. Brent crude added 18 cents to reach at $71.22 a barrel as U.S. West Texas Intermediate, or WTI, crude rose 6 cents to $67.08 a barrel. The escalation of conflict seemed to be the primary driver of this increase, but weak fuel demand in China and increasing oil surplus fears capped prices from rising further.
Russia unleashed its largest-scale airstrike on Ukraine over the weekend in nearly three months, damaging power infrastructure throughout the country. The U.S. also materially moved policy, allowing Ukraine to use American-made weapons on deeper reaches of Russia, including near Kursk, a Russian city. Such moves may spur the escalation of this war, oil supplies may suffer, and price rise.
Russia has yet to comment on the U.S. decision, but earlier had threatened that the continued use of long-range weapons by Ukraine may be the reason behind the existing escalation of the situation. Should Ukraine target more oil facilities in Russia-including refineries or pipelines-then this may just spark further disruptions in the global oil market and send prices even higher.
Other factors, too, are impacting the price of oil. China, the world’s second-largest oil consumer, has also seen demand for oil softer than expected. China’s oil refinery output slid 4.6% in October from the same period last year, and factory production is slowing. Such weakness from China might dampen gains.
There is also the question of oil oversupply. The International Energy Agency, according to forecasts, is predicting that a world oil supply is likely to outstrip demand by more than 1 million barrels per day in 2025, even if OPEC+ continues its output cuts. This would put an overabundance of oil on the market, keeping prices under pressure.
To be sure, in the U.S., active oil rigs fell to 478 last week, the lowest since mid-July. That means that U.S. oil production may soon start to fall, thereby, reducing supply but also suggesting more general jitters.
Investors are also monitoring U.S. interest rate decisions as any change in rates impacts the global financial markets and, in turn, influences the oil prices.
