By Charles Ebi
Prices of crude oil rose yesterday after Ukraine strike Russia with long-range weapons, first time since the war began. Reacting to increasing geopolitical tensions, commodities price increased across complex.
Brent crude rose to $73.23 per barrel while The US benchmark West Texas Intermediate also increased to $69.42 per barrel,
Tensions rose between Russia and Ukraine after international media reported that the Joe Biden administration granted Kiev permission to use long-range American weapons on Russian territory for a limited time.
The Russian Ministry of Defence announced Tuesday that Ukraine attacked the Braynsk region of Russian territory at night with 6 American-made long-range tactical ATACMS missiles.
The ministry statement noted that the missiles were blocked by S-400 and ‘Pantsir’ air defencel missile systems. Also, Russian President, Vladimir Putin approved the doctrine that allows his country to respond with nuclear weapons if it is attacked by ballistic missiles.
The Russian Ministry of Defence also announced that the army captured the Novoselidovka settlement in the Donetsk region. The Ministry reported that attacks were carried out against Ukraine’s military airport infrastructure and energy elements in 146 regions in the last 24 hours.
Meanwhile, uncertainty over the timeline for ending the Fed’s inflation fight pressured asset prices, fueling speculation that an interest rate cut may be off the table next month.
According to pricing in the money markets, there is a 59% probability that the Fed will reduce interest rates next month and a 41% probability that it will keep the policy rate constant.
Also, the rise of the US dollar against other currencies is expected to lower demand by making oil more expensive for those who use foreign currencies. The US dollar index, which measures the US dollar’s value against other currencies, increased 0.11% to 106.262.
A potential trade war between the US and China, the world’s largest oil consumers, coupled with persistent concerns over China’s economic activity, continue to impact commodity prices.
Ongoing concerns about economic activity in China underpin experts’ worry over a slowdown in crude demand in the world’s biggest oil importer.
Following Donald Trump’s re-election as US President, worries over a possible trade war arose as president-elect Trump is expected to apply tax cuts on companies and high tariffs on imported goods.
Despite an escalation in the Russia-Ukraine war, there has been limited impact on oil prices, according to ING. Analysts noted Brent settled almost flat yesterday, even after Ukraine fired a US-made long-range missile into Russia for the first time.
At the same time, Russia also updated its nuclear doctrine, widening the scope for the use of atomic weapons.
Eating into some of the geopolitical risks related to Russia-Ukraine were reports that Iran offered to stop increasing its stockpiles of uranium enriched up to 60%.
The International Atomic Energy Agency has said Iran has taken the first steps to cap production. If this occurs, it removes some supply risks related to Iranian oil when President-elect Trump enters office, ING commodities strategists said in a note.
In the North Sea, the Johan Sverdrup field has resumed operations after a power outage led to a halt in production on Monday. The field produces around 755,000 barrel per day (b/d) but will take some time to return to full capacity, according to analysts.
Numbers from the API overnight show that US crude oil inventories increased by 4.8 million barrels over the last week, compared to expectations for a marginal draw.
For refined products, gasoline and distillate stocks fell by 2.5 million barrels and 700,000 barrels respectively, report said.
