Oil Prices Surge 5.2% as U.S. Pressures Russia, Dollar Weakens

Oil prices surged past $70 per barrel, marking the largest single-week increase since the Iraq conflict. This significant rise was driven by a combination of geopolitical tensions and economic factors. The U.S. administration's pressure on countries to cease purchasing Russian oil, coupled with stronger-than-expected U.S. inflation data and a weakening U.S. dollar, collectively pushed oil prices higher. Brent crude closed above $70 per barrel for the first time since late July, with a weekly gain of approximately 5.2%. Meanwhile, West Texas Intermediate (WTI) crude oil hovered around $66 per barrel.

The geopolitical tensions escalated as the U.S. administration pressured countries to stop purchasing Russian oil, leading to a significant surge in international oil prices. The benchmark Brent crude oil briefly surpassed the $70 per barrel mark, marking the largest single-week increase since the Iraq conflict. This surge was driven by a combination of factors, including stronger-than-expected U.S. inflation data and a weakening U.S. dollar, which collectively pushed oil prices higher. Brent crude closed above $70 per barrel for the first time since late July, with a weekly gain of approximately 5.2%. Meanwhile, West Texas Intermediate (WTI) crude oil hovered around $66 per barrel.

The pressure on Russia to end the conflict with Ukraine has created uncertainty about the country's export prospects. This, coupled with algorithmic trading, contributed to the oil price surge, which recorded the largest single-week increase in over three months. The upward trend in Brent crude was further supported by positive U.S. economic data, which alleviated concerns about short-term demand deterioration. The weakening U.S. dollar also made dollar-denominated commodities more attractive, driving up oil prices.

The geopolitical developments added to the bullish sentiment in the oil market. The U.S. administration urged Turkey to halt Russian oil purchases and indicated that similar demands would be made to Hungary. Earlier in the week, the administration criticized NATO members for buying fuel from Russia. These actions, along with the broader financial market rally, contributed to the rise in oil prices. The 11-month WTI crude oil contract closed at $65.72 per barrel, up 1.1%, while the 11-month Brent crude oil contract closed at $70.13 per barrel, up 1%.

In addition to the U.S. administration's pressure on Russia, the conflict in Ukraine has further complicated the oil market. Ukraine has intensified its drone attacks on Russian energy infrastructure, directly threatening its supply capabilities. European diplomats have warned the Kremlin that NATO is prepared to respond forcefully to any further incursions into its airspace, including the possibility of shooting down Russian aircraft. Furthermore, the failure of U.S. diplomatic efforts to resolve the stalemate over Iran's nuclear program has led to the reimposition of broad sanctions on Iran by the United Nations, which could further tighten global oil supplies.

Despite the geopolitical risks driving up oil prices, the market's supply outlook remains complex. Predictions from organizations such as the International Energy Agency (IEA) suggest that the market will experience a surplus later this year, driven by increased production from OPEC+ and non-OPEC oil-producing countries, particularly in the Americas. Currently, the market widely expects OPEC+ to approve another round of production increases in November to regain global market share. However, the effectiveness of this strategy remains uncertain, as it depends on the willingness of OPEC+ members to maintain production levels despite potential price declines.

Moreover, a significant new supply is set to enter the market. Reports indicate that oil exports from the Kurdish region of Iraq, which have been halted for over two years, will resume through the Turkish port of Ceyhan. Initial recovery volumes are expected to be 230,000 barrels per day, with the potential to increase to 500,000 barrels per day in the future. However, market reactions to this news have been muted, as traders speculate that much of the halted production has already been redirected for domestic consumption or exported to neighboring countries.