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Oil prices saw a slight uptick on Monday as intensifying conflict between Russia and Ukraine over the weekend raised supply worries, although market gains were capped by concerns about fuel demand in China and expectations of a global oil surplus.
By 0502 GMT, Brent crude futures increased by 29 cents, or 0.4%, to $71.33 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 18 cents, or 0.3%, to $67.20 a barrel.
Escalation in Russia-Ukraine Conflict
The escalation in hostilities came as Russia launched its most extensive air assault on Ukraine in nearly three months, causing widespread damage to the country’s energy infrastructure. In a notable policy shift, the Biden administration has authorized Ukraine to use U.S.-made weapons to strike targets deeper inside Russia. This decision, confirmed by U.S. officials on Sunday, has raised concerns about further escalation, although the Kremlin has yet to respond.
Energy analyst Saul Kavonic from MST Marquee remarked, “So far there has been little impact on Russian oil exports, but if Ukraine were to target more oil infrastructure, that could see oil markets elevate further.”
Amid the conflict, at least three Russian refineries have reduced processing rates or halted operations. This move has been driven by substantial financial losses linked to export restrictions, higher crude prices, and elevated borrowing costs, according to industry insiders.
Demand Woes and Global Surplus Fears
Despite geopolitical tensions, oil prices remain under pressure from weak demand signals, particularly from China. Last week, both Brent and WTI saw declines of over 3% after data showed a slowdown in Chinese refinery throughput and industrial production. Additionally, the International Energy Agency (IEA) has projected that global oil supply will outstrip demand by more than 1 million barrels per day by 2025, even if OPEC+ production cuts continue.
China’s refinery throughput in October dropped 4.6% year-on-year, compounded by a slowdown in factory output growth, as reported by government data last Friday.
Market Uncertainty from Interest Rate Speculation
Investors are also grappling with uncertainty around the pace of interest rate cuts by the U.S. Federal Reserve, which has added volatility to global financial markets. In the U.S., the number of active oil rigs declined by one to 478 last week, marking the lowest count since mid-July, according to data from Baker Hughes.
