The Ukraine war fueled supply concerns, sending oil higher
Ukraine's attacks forced Russia to shut down 17% of its oil processing capacity. Oil prices rose on Tuesday as the escalation of the conflict fueled concerns about supply disruptions and as the market assessed whether upcoming US employment data would prompt interest rate cuts.
Brent crude rose 37 cents, or 0.54%, to $68.52 a barrel by 06:17 GMT, while WTI crude rose $1.01, or 1.58%, to $65.02 a barrel.
WTI futures were closed on Monday for the US Labor Day holiday. US markets reopened on Tuesday.
Oil prices are strengthening in the short term due to the possibility of an imminent Fed easing, which is boosting demand sentiment.
This week, a series of US labor force data will be released ahead of the Federal Reserve's September meeting. These data could strengthen the arguments for monetary easing after the surprisingly weak US employment data released in July.
On the supply side, recent drone strikes by Ukraine have shut down facilities accounting for at least 17% of Russia's oil processing capacity, or 1.1 million barrels per day.
Zelenskiy said that Ukraine is planning new attacks on Russia's interior, following weeks of intensifying attacks on Russian energy assets.
Russia and Ukraine have intensified their airstrikes in recent weeks. Russia is targeting Ukraine's energy and transportation systems, while Ukraine is attacking Russian oil refineries and pipelines.
China’s vision of a “new global order” has the potential to escalate geopolitical tensions. Chinese President Xi Jinping, at a summit attended by the leaders of Russia and India on Monday, directly challenged the US, emphasizing his vision for a new global security and economic order that prioritizes the “Global South.”
China and India are the largest buyers of crude oil from Russia, the world’s second-largest exporter. Trump imposed additional tariffs on India for purchases, but not on China!
Investors are awaiting the September 7 meeting of OPEC+ members. The market expects OPEC+, which has eased supply cuts over the past six months, to maintain its current production level for now.
According to the IEA, this, combined with concerns about the economic impact of the tariffs, has led to oil supply increasing faster than demand.
The extent of the supply glut into next year is expected to be reflected in the group’s additional market demand. This means it is unlikely to bring in supplies.
The worrying aspect in this environment is that a potential oversupply could rekindle OPEC+'s supply cuts.
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