Oil prices rose on Monday after fighting between Russia and Ukraine escalated over the weekend, although concerns about fuel demand in China, the world’s second-largest consumer, and expectations of a global oil surplus weighed on markets.
Brent crude futures rose 29 cents, or 0.4%, to $71.33 per barrel, while US West Texas Intermediate crude futures reached $67.20 per barrel, up 18 cents, or 0.3%.
Russia launched its largest air strike on Ukraine in nearly three months on Sunday, causing severe damage to Ukraine’s energy system.
Two US officials and a source familiar with the decision said on Sunday that President Joe Biden’s administration had allowed Ukraine to use US-made weapons to strike deep into Russia, in a significant retreat from Washington’s policy in the conflict between Ukraine and Russia.
“Allowing Ukraine to hit Russian forces around Kursk with long-range missiles could spark a return to the geopolitical push for oil, as it is an escalation of tensions there, in response to North Korean forces entering the fray,” IG Markets analyst Tony Sycamore said.
“So far there has been little impact on Russian oil exports, but if Ukraine targets more oil infrastructure, it could send oil markets higher,” said Sol Kavonic, energy analyst at MST Markey.
In Russia, at least three refineries have been forced to stop processing or reduce operations due to heavy losses amid export restrictions, rising crude prices and rising borrowing costs, according to five industry sources.
Brent and West Texas Intermediate crude prices fell by more than 3% last week due to weak data from China and after the International Energy Agency expected that global oil supply would exceed demand by more than one million barrels per day in 2025, even if cuts from OPEC+ remain in place.
Government data showed on Friday that China’s refinery output fell by 4.6% in October compared to last year, with factory output growth in the country slowing last month.
Investors also expressed concern about the pace and extent of interest rate cuts by the US Federal Reserve, which has created uncertainty in global financial markets.
In the United States, the number of operating oil rigs fell by one rig to 478 last week, the lowest level since the week ending July 19, according to Baker Hughes data.
