Oil futures got a lift Thursday, finding support on concerns that Russia’s escalation of its invasion of Ukraine could further crimp energy flows, as well as the prospect of increased demand from China.
Price action
- West Texas Intermediate crude for November delivery CL.1, +0.80% CL00, +0.80% CLX22, +0.80% rose 80 cents, or 1%, to $83.74 a barrel on the New York Mercantile Exchange.
- November Brent crude BRN00, +0.81% BRNX22, +0.81%, the global benchmark, was up 91 cents, or 1%, at $90.74 a barrel on ICE Futures Europe.
- Back on Nymex, October gasoline RBV22, +1.15% rose 1.9% to $2.5339 a gallon, while October heating oil HOV22, +2.62% rose 2.4% to $3.4134 a gallon.
- October natural gas NGV22, -3.02% fell 3.8% to $7.481 per million British thermal units.
Market drivers
Oil was up after settling a day earlier at their lowest prices in two weeks. Crude prices fell Wednesday after another weekly rise in U.S. crude inventories and a Federal Reserve interest rate hike that was accompanied by signals the central bank will continue to aggressively increase interest rates in its effort to get inflation under control.
Worries that aggressive rate increases by the Fed and other major central banks, many of which followed suit by raising their rates on Thursday, will spark a global recession or a major economic slowdown had overshadowed Russian President Vladimir Putin’s decision to partially mobilize reservists, as well as comments that were viewed as a threat to use nuclear weapons, analysts said.
Economic uncertainty is likely to cap any rallies for oil in the mid $90-to-$100 a barrel range “leaving oil in a sideways trading pattern near-to-medium term,” said analysts at Sevens Report Research in Thursday’s newsletter.
Still, “the geopolitical influences from the war in Ukraine will remain a tailwind as will OPEC+ badly undershooting their production targets,” they said.
Read: Markets ignore Putin’s nuclear saber-rattling. Why that might change.
Indeed, Russia’s moves raise significant supply concerns, said Warren Patterson, head of commodities strategy at ING, in a note.
“This is a clear escalation and raises concerns over what the implications could be for Russian energy flows. There is the potential that we see the West having to become more aggressive in terms of energy sanctions or the potential for Putin to weaponize energy even further,” he wrote.
Russia has limited leverage left around natural gas, with flows to the European Union already down around 70% year-over-year. “Where Russia has more leverage is oil, but even this will reduce in the coming months as the EU’s ban on Russian oil and refined products comes into effect,” Patterson said.
Prospects for an increase in Chinese crude demand were also providing support, analysts said.
At least three China state-run oil refineries and a privately run mega refiner were weighing a 10% rise in runs in October from September amid prospects for increased demand and a possible pickup in exports in the fourth quarter, Reuters reported.
Reports that China is considering authorizing up to 15 million tons of refined-product exports, however, are a weight on products prices.
“If these latest reports are confirmed, this will be a big deal for product markets, with it equating to around 1 [million barrels per day] of refined product supply for the remainder of the year,” Patterson said. “This should offer some relief to middle distillate markets, which have been extremely tight this year.”
Meanwhile, data from the Energy Information Administration Thursday showed that domestic natural-gas supplies rose by 103 billion cubic feet for the week ended Sept. 16. That was larger than the average analyst forecast for an increase of 92 billion cubic feet, based on a survey conducted by S&P Global Commodity Insights.