Oil prices saw a slight uptick on Monday, buoyed by escalating tensions between Russia and Ukraine over the weekend. However, ongoing concerns about fuel demand in China, coupled with forecasts of a global oil surplus, kept market sentiment in check.
By 0130 GMT, Brent crude futures had risen by 20 cents, or 0.3%, to $71.24 per barrel, while U.S. West Texas Intermediate (WTI) crude was up by 9 cents, or 0.1%, at $67.11 per barrel.
A significant shift in U.S. policy also contributed to market uncertainty. The Biden administration has granted Ukraine permission to use U.S.-made weapons to strike deep into Russian territory, a move that marks a reversal of Washington’s previous stance. Sources familiar with the decision reported the development on Sunday. The Kremlin has yet to respond, but it has previously warned that loosening restrictions on Ukraine’s use of U.S. weapons would be seen as a major escalation.
IG Markets analyst Tony Sycamore noted that the decision to allow Ukraine to target Russian forces near Kursk could further inflame geopolitical tensions, particularly in light of North Korean troops’ involvement in the conflict. “This could drive oil markets as an escalation in tensions,” Sycamore said.
In response to the heightened conflict, Russia launched its largest airstrike on Ukraine in nearly three months on Sunday, causing significant damage to Ukraine’s power infrastructure.
On the supply side, at least three Russian refineries have been forced to halt or reduce operations due to the combined impact of export restrictions, rising crude prices, and high borrowing costs, according to sources in the industry.
Despite these geopolitical and supply disruptions, oil prices faced pressure last week, sliding more than 3%. This drop was driven by weak economic data from China and a forecast from the International Energy Agency (IEA) predicting that global oil supply would outpace demand by more than 1 million barrels per day in 2025, even with ongoing production cuts from OPEC+.
In China, refinery throughput fell 4.6% in October compared to the same month last year, alongside a slowdown in factory output, according to government data released on Friday.
Investors are also grappling with uncertainty surrounding the U.S. Federal Reserve’s interest rate decisions, which have added volatility to global financial markets.
On the U.S. domestic front, the number of active oil rigs decreased by one to 478 last week, marking the lowest level since July 19, according to data from Baker Hughes.
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