Brent gains as the Russia-Ukraine conflict escalates

The front-month ICE Brent contract has moved $1.88/bbl higher on the day, to trade at $72.87/bbl at 09.00 GMT.

PHOTO: An oil barrel. Getty Images

Upward pressure:

The sudden escalation of the Russia-Ukraine conflict has pushed oil prices higher.

Brent’s price surged after Washington approved Ukraine’s use of long-range missiles against Russia, ramping up tensions between the two warring nations, according to media reports.  

“[Brent] crude oil roared to life, surging nearly 3%, as geopolitical tensions reignited with the US greenlighting Ukraine’s use of long-range missiles against Russia,” SPI Asset Management’s managing partner Stephen Innes said.

Meanwhile, oil production of about 755,000 b/d in Norway’s Johan Sverdrup field has been cut due to a power outage, Reuters reports. This news has also supported oil prices.

“A halt of production at the 755k b/d [755,000 b/d] Johan Sverdrup field in Norway due to a power outage… provided further upside [to oil],” two analysts from ING Bank said.

Downward pressure:

Demand growth concerns simmering in China, the world's second-largest oil consumer, have continued to put some downward pressure on Brent’s price.

Chinese oil consumption in October dropped by 5.4% month-on-month, with refiners processing about 59.54 million mt of crude oil last month, according to data from the National Bureau of Statistics (NBS).

“Chinese demand concerns continue to overshadow global tight supply and optimistic predictions for the upcoming Thanksgiving travel expectations,” Price Futures Group’s senior market analyst Phil Flynn said.

Moreover, recent economic data from China has raised concerns among market participants about the inefficacy of Beijing's latest stimulus package. Earlier this month, China unveiled a 10 trillion yuan ($1.40 trillion) stimulus package to support economic growth in the country.

China's October industrial output increased 5.3% year-on-year, slipping from a 5.4% growth recorded in September, the NBS reported.

Weakness in industrial output indicates weak economic health, as well as a contraction in the manufacturing sector, which includes production, inventory levels, etc. It highlights demand growth concerns, ultimately weighing down on prices of commodities like oil.

By Aparupa Mazumder

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