Supply disruption pushes oil prices 3% higher

Oil prices surged on Monday, driven by a combination of factors including a production halt at Norway’s Johan Sverdrup oilfield and escalating tensions in the Russia-Ukraine war.

Brent crude futures climbed by 2.9% to $73.10 a barrel, while U.S. West Texas Intermediate crude futures rose by 2.9% to $68.99 a barrel. The outage at the Johan Sverdrup field, Western Europe’s largest, tightened the North Sea crude market and contributed to the price increase.

The escalation of the Russia-Ukraine conflict, particularly with the US allowing Ukraine to use US-made weapons to strike deep into Russia, further fueled market volatility. The Kremlin responded by vowing to retaliate, raising concerns about a potential confrontation with NATO.

However, despite these geopolitical tensions, the immediate impact on Russian oil exports has been limited. The focus remains on the potential for increased attacks on Ukrainian oil infrastructure, which could lead to further price hikes.

Additionally, market dynamics played a role in the price movement. A weak outlook for Chinese oil demand and the International Energy Agency’s forecast of a global oil supply surplus in 2025 put downward pressure on prices. However, the production outage and geopolitical risks outweighed these bearish factors.

Traders also shifted their focus to the January WTI contract, which could lead to a market structure shift from backwardation to contango. This shift, where later contracts trade at a premium to earlier ones, can impact market sentiment and price trends.