Global oil prices rose by about 1% Friday at a two-week high amid increased geopolitical tensions as the war in Ukraine continues. Brent crude futures rose 94 cents, or 1.3%, to settle at $75.17 a barrel, while U.S. West Texas Intermediate, or WTI crude, advanced $1.14, or 1.6%, to close at $71.24 a barrel. These gains pushed both benchmarks up by about 6% for the week, marking their highest settlements since November 7.
The sharp rise in oil prices is driven by heightened market risks as Russia escalated its military actions in Ukraine. Moscow intensified its missile strikes following reports that the U.S. and the UK allowed Ukraine to utilize advanced weaponry for deeper incursions into Russian territory. The new developments included the appearance of Russia’s Oreshnik hypersonic missile, which was deployed to counter the use by Ukraine of U.S.-supplied ballistic missiles and British cruise missiles. Such actions further escalate concerns about the possibility of strong disruptions in oil, gas, and refining infrastructure, expanding the scope of market volatility.
Adding to geopolitical factors, the U.S. imposed new sanctions on Russia’s Gazprombank to punish Moscow for its continued aggression. Coupled with bans on various imports from Chinese companies accused of forced labor, this move underscored the emerging global economic and political strains. Russia responded by criticizing sanctions as an attempt to impede its gas exports but vowed to find alternative solutions.
Meanwhile, market fundamentals also influenced price movements. China, the world’s largest oil importer, introduced policy measures to bolster trade, including energy product imports. Analysts observed a likely rebound in China’s crude imports for November. Similarly, India, the third-largest oil importer, reported an increase in oil imports driven by rising domestic consumption.
Despite these bullish trends, oil price gains were capped by weaker economic data from the eurozone. Business activity in the bloc declined sharply as its service and manufacturing sectors reported weakening. The U.S. economy, however, seemed more resilient as the increase in the Composite PMI Output Index indicated strong activity in the services sector. But the widening gap between the U.S. and European economies strengthened the dollar for the U.S., posting a two-year high. That appreciated the euro into the oil buyers’ currency, making oil more expensive and dampening demand.
The Eurozone’s largest economy, Germany, also reported slower-than-expected growth in the third quarter, further weighing on market sentiment. Analysts continue to monitor the delicate balance of geopolitical developments, global economic data, and oil demand trends for future market direction.
Conclusion
The intensification of the conflict in Ukraine and its spillover into energy markets drive home the volatility in the global oil dynamics as it is shrouded by various geopolitical uncertainties. While consumption remains on the uptick for big consumers such as China and India, Europe grapples with economic challenges and a strong U.S. dollar creates headwinds, and the coming weeks should be nothing short of volatile as geopolitics and macro-economic factors collide.
Source: Reuters