Brent breaks above $85/bbl as geopolitical conflicts intensify

The front-month ICE Brent contract moved $1.12/bbl up on the day from Friday, to trade at $85.85/bbl at 09.00 GMT.

PHOTO: A pumpjack and oil refinery in Seminole, West Texas. Getty Images

Upward pressure:

The upward momentum in Brent futures was driven by mounting geopolitical tensions in both Eastern Europe and the Middle East.

Ukraine launched multiple drone attacks across Russia over the weekend, which led to a fire incident at the Slavyansk refinery in Krasnodar, as confirmed by the Russian defense ministry. The refinery, which processes 8.5 million mt of crude oil annually (equivalent to 170,000 b/d), faced disruption, Reuters reported. While the drones were neutralized, one caused a fire upon landing, according to the Krasnodar region's operational headquarters’ official Telegram channel.

Initial estimates suggest that around 15% of Russia's refining capacity suffered disruption after the recent drone attack, potentially leading to a short-term decline in crude oil exports as authorities work to mitigate the impacts, SPI Asset Management’s managing partner Stephen Innes noted.

Meanwhile, in the Middle East, Israeli Prime Minister Benjamin Netanyahu reiterated the country's commitment towards the ongoing military operations in the Gaza Strip until a complete removal of the Hamas militants' group is achieved. Netanyahu's recent statement has extinguished hopes about the warring parties reaching a ceasefire deal, thereby reigniting concerns about supply disruptions in the oil market.

These events intensified upward pressure on oil prices, highlighting the market's susceptibility to geopolitical tensions and supply interruptions, Innes commented.

Downward pressure:

Brent futures faced downward pressure due to the strengthening of the US dollar last week, which experienced its most rapid growth in eight weeks following a 0.6% increase in the country's producer price index (PPI) in February.

A higher PPI reading could prompt the US Federal Reserve (Fed) to postpone its interest rate reduction plans for the year, potentially dampening demand growth in the world's largest crude oil consuming nation.

Oil investors will closely monitor the outcome of the US Fed's two-day meeting, which commences today, according to IG Bank's analyst Tony Sycamore. He emphasized that the recent high Consumer Price Index (CPI) and Producer Price Index (PPI) data will be key considerations for Fed members during this week's Federal Open Market Committee (FOMC) meeting.

By Tuhin Roy

Please get in touch with comments or additional info to news@engine.online