Invezz.com - Oil prices were on course to finish the week with gains once again as geopolitical tensions between Russia and Ukraine underpinned the market.
Prices briefly dropped as data showed that business activity in the Euro zone contracted this month.
On Friday, prices fell slightly, but both West Texas Intermediate and Brent crude oil benchmarks were set for weekly gains of nearly 5%.
“WTI crude oil futures climbed above $70 per barrel, poised for their strongest week in two months, as geopolitical tensions elevated the risk premium in energy markets,” Arslan Ali, derivatives analyst at Fxempire, said in a report.
Both WTI and Brent prices rose sharply this week as concerns over disruptions in supply from Russia marked the return of the risk premiums.
Russia and Ukraine traded blows against each other, escalating the conflict that has now nearly completed three years.
At the time of writing, the WTI crude price on the New York Mercantile Exchange was $69.84 per barrel, while Brent crude on the Intercontinental Exchange was around $74 per barrel.
Russia-Ukraine tensions underpin market
On Thursday, Russian President Vladimir Putin said that the country had fired a ballistic missile at Ukraine.
Putin had also lowered the bar for using nuclear weapons, and warned against a global conflict as both the US and Britain allowed Ukraine to use their weapons in the war.
Ukraine had attacked Russia on Tuesday and Wednesday using US- and Britain-made weapons to strike deep Russian territory.
ING Group’s analysts had said on Thursday that this raised the prospect of Ukraine hitting Russia’s oil facilities, which could cripple supply from one of the top exporters of the fuel.
Russia’s oil supply at risk
Three refineries in Russia recently had to suspend or reduce their processing in Russia, as Reuters reported, citing five industry sources.
The reasons given included deteriorating margins as a result of higher local crude oil prices and more expensive financing conditions.
In addition, the three refineries mentioned have already been hit by Ukrainian drones this year in June, which had reduced their processing capacity.
Carsten Fritsch, commodity analyst at Commerzbank AG (ETR:CBKG), said in a report:
The prospect of lower Russian diesel exports also caused the gasoil crack spread to rise to just under USD 19 per barrel this week.
Moreover, the western powers have now allowed Ukraine to use their long-range weapons, which could increase the probability of more such strikes on Russia’s oil facilities.
China’s oil imports to rise in November
China’s crude oil imports are expected to rise to 11.4 million barrels per day in November, its highest level since August, and the third-highest level this year.
This was reported by Reuters, citing tanker tracking and port data compiled by Kpler and LSEG Oil Research.
However, experts believe that this does not totally reflect stronger demand for oil in China.
“Rather, Chinese refineries may have used the lower price level to frontload purchases that went into stockpiling.
These purchases would then not be needed later,” Commerzbank’s Fritsch said.
It is unlikely that refineries will ramp up their processing noticeably.