Oil prices have seen a notable increase after a three-day decline, with Brent crude moving toward $86 a barrel and West Texas Intermediate (WTI) below $81. This uptick is attributed to a tightening market influenced by sanctions, geopolitical tensions, and OPEC+ supply cuts.
Additionally, continued drone strikes by Ukraine on Russian crude-refining capabilities and a terrorist attack in Moscow have added to the geopolitical risks affecting the oil market.
Sanctions and Supply Constraints
The Russian oil export mechanism is encountering hurdles due to heightened sanctions, notably from the US, which have aimed at the broader fleet of tankers transporting Russian crude oil.
This situation has led to a substantial accumulation of Russian diesel barrels sitting idle, reaching levels unprecedented since 2017.
The sanctions imposed by the Group of Seven are designed to curb Russian petroleum revenues without inadvertently causing harm in the form of elevated oil prices. Nevertheless, with oil prices edging closer to $90 a barrel and a US election campaign in progress, the extent of additional sanctions remains a pivotal question.
Market Reactions and Adjustments
In response to these developments, the market has exhibited several notable shifts. Options markets display reduced bearish sentiment, while crucial time spreads indicate a tightening market.
Crude oil is poised for a third consecutive monthly increase, bolstered by OPEC+ production cuts and encouraging data from China signaling robust factory output and record-breaking crude refining.
Nonetheless, the Federal Reserve’s prudent approach toward rate adjustments, prompted by a resilient US economy, introduces another dimension of complexity to the market dynamics.
