Oil Prices Surge 1.6% Amid Geopolitical Tensions, Supply Concerns

Oil prices have maintained an upward trajectory over the past week, driven by escalating geopolitical tensions and supply concerns stemming from the situation in Russia. The market has been particularly sensitive to the possibility of supply disruptions from Russia, which has led to a surge in oil prices. On Tuesday, Brent crude oil rose by 1.6%, hovering just below $68 per barrel, while West Texas Intermediate (WTI) crude oil prices remained above $63 per barrel. The strong stance taken by the U.S. administration, including calls for NATO to shoot down Russian aircraft, has further exacerbated investor concerns about potential supply interruptions.

The U.S. administration has taken a firm stance on the situation in Russia, with the U.S. President expressing support for Ukraine's potential victory in the conflict. The administration has also reiterated the need for Europe to reduce its reliance on Russian energy. This stance has been reinforced by the U.S. President's remarks at the United Nations General Assembly, where he highlighted the role of China and India in funding the conflict through their continued purchases of Russian oil. The U.S. President also criticized NATO countries for not significantly reducing their imports of Russian energy and energy products.

In response to recent drone attacks on its energy infrastructure, Russia is considering imposing export restrictions on diesel. These attacks have raised concerns about Russia's energy supply capabilities, further fueling market anxieties. In Europe, the price of gasoil, which includes diesel, surged by 2.4% on Tuesday, marking its largest increase in three weeks. This surge reflects the heightened concerns about potential supply disruptions and the impact on energy markets.

Analysts have noted that the current low levels of OECD oil inventories and the expected decline in U.S. oil inventories are providing support for oil prices. However, the increase in OPEC+ oil exports since September has been a negative factor for oil prices. The market is currently balancing between bearish fundamental factors and long-term geopolitical risks. On the supply side, Iraq is finalizing an agreement to resume oil exports from the Kurdish region, which could add approximately 230,000 barrels per day to the global market, potentially exacerbating the supply glut.

In the U.S., industry reports indicate that oil inventories decreased by 3.8 million barrels last week, while distillate inventories, which include diesel and heating oil, increased. Official inventory data is expected to be released later this week. Market indicators suggest that oil prices are receiving support, with the near-month price spread for Brent crude oil in a backwardation of 70 cents per barrel, double the level from two weeks ago. Additionally, the price spread between the two nearest December contracts has widened to $1.43 per barrel from less than $1 per barrel two weeks ago.