Despite a grim warning from an expert about potential supply disruptions due to rising tensions between Russia and Ukraine, oil futures surged on Friday to notch their fourth consecutive weekly gain, according to Bloomberg.
From an energy perspective, this has the potential to be a seismic event, according to Phoebe Flynn, a senior market analyst at The Price Futures Group. Europe, in its haste to wean itself off fossil fuels, has “grown more reliant on Russia as a significant supply of energy,” according to the International Energy Agency (IEA).
Russian military forces began deploying tanks and other military equipment westward toward Ukraine from their facilities in the Far East while diplomats met to discuss the problem, according to a report in The Wall Street Journal on Friday, citing United States officials and social-media accounts.
Associated Press reported on Friday that a hack had caused a number of Ukrainian government websites to be momentarily offline. Oleg Nikolenko, a spokesperson for the Ukrainian Foreign Ministry, told Reuters that while it was too soon to determine who was behind the attack, “there is a lengthy history of Russian cyber strikes against Ukraine in the past.”
In an interview with MarketWatch, Manish Raj, chief financial officer at Velandera Energy Partners, said that the escalating situation between Russia and Ukraine has increased the political risk premium.
“Whereas the Russian-Ukrainian situation has a direct impact on regional natural gas prices, crude oil prices have remained largely unaffected, owing to the fact that little Russian oil transits via Ukraine,” he explained further. The possibility of an armed war, on the other hand, is a significant development that has broad geopolitical repercussions, which has the effect of raising oil price premiums.
Dow Jones Market Data reports that West Texas Intermediate crude for February delivery CL00, +2.62 percent CLG22, +2.62 percent rose $1.70, or 2.1 percent, to settle at $83.82 a barrel on the New York Mercantile Exchange, helping the United States benchmark to post a 6.2 percent weekly gain, its fourth consecutive weekly gain.
Brent crude oil BRN00, +0.48 percent for March Global benchmark Brent crude oil futures rose $1.59, or 1.9 percent, to $86.06 a barrel on the ICE Futures Europe exchange, marking the third straight week of gains for the contract.
According to Raj, the increase in demand optimism has also provided some relief to the oil markets. Oil demand centres, particularly Spain and the rest of Europe, have “begun to regard COVID as an endemic,” which means they are “learning to live with COVID rather than imposing periodic lockdowns,” as reported by the International Energy Agency.
Meanwhile, the Organization of the Petroleum Exporting Countries and its partners, known as OPEC+, remained committed to their plan to gradually increase production, despite demand from the Biden administration and others to accelerate the pace of the increase in output. A few OPEC countries, however, have fallen short of their increased production targets.
According to Robbie Fraser, global research and analytics manager at Schneider Electric, supply projections for the coming months continue to call for greater output from OPEC+ and U.S. shale producers.
In the short term, however, geopolitics and unanticipated outages have provided additional support to prices, according to the analyst. Unrest in nations such as Libya and Kazakhstan has caused some significant, but most likely short-term production losses in recent weeks, while prospects for a breakthrough in the negotiations over a revised Iranian nuclear deal have once again dimmed.
According to Fraser, the total consequence is “mixed conditions,” which were represented in part by this week’s [Energy Information Administration] data, which indicated a larger reduction in U.S. crude stocks, which was mainly offset by a huge increase in gasoline stocks.
Price increases for crude oil were seen Friday, despite reports of a possible release of crude from China’s strategic reserves and a weekly increase in the number of active oil drilling rigs in the United States.
According to Reuters, China will release oil around the time of the Lunar New Year, which occurs on February 1, as part of a global consumer initiative orchestrated by the United States. In addition, Baker Hughes BKR, +4.53 percent said Friday that the number of active oil rigs in the United States increased by 11 to 492 this week. According to Baker Hughes data, this was the largest weekly increase since October.
Some analysts believe that oil prices may be able to take a breather near their current levels.
Analysts at Sevens Report Research wrote in their weekly newsletter on Friday that while the outlook for the global oil market has improved in recent weeks, with a smaller surplus now expected in 2022, the developments have “likely not been bullish enough to push futures to new multiyear highs just yet.”
Oil has been overbought in the near term, according to the analysts, despite the fact that the long-term uptrend is very much intact at this time. After WTI has risen more than 25 percent since the market’s lows on December 20, we expect the market to consolidate a little bit here.”
Among the petroleum products traded on the New York Mercantile Exchange, February gasoline RBG22, +1.67 percent gained 1.5 percent to $2.419 a gallon, representing a 5.2 percent gain for the week. March gasoline RBG22, +1.67 percent gained 5.2 percent to $2.419 a gallon. The price of February heating oil HOG22, +1.09% increased by 1 percent to $2.634 a gallon, representing a 6.1 percent increase in a week.
While natural gas prices fell by 12 percent on Thursday, natural gas futures saw their February contract NGG22, +1.05% close 0.2 percent down at $4.262 per million British thermal units, down from $4.265. Prices, on the other hand, increased by 8.8 percent during the course of the week.