Oil prices rose as pressure on Russia's oil industry and the escalating conflict in the Middle East intensified. West Texas Intermediate (WTI) crude rose as much as 2% to $64 per barrel after Reuters reported that Russia's Transneft pipeline, which handles more than 80% of the country's oil, had restricted the company's ability to store crude.

Ukraine attacked another Russian refinery overnight as Western nations considered new sanctions in an attempt to pressure President Vladimir Putin to the negotiating table. Ukrainian military forces have intensified drone attacks on Russian energy facilities in recent weeks, including the country's largest Baltic oil terminal at Primorsk.

The full impact of the attacks on Moscow's oil flows is unclear, but data is starting to show a decline in refinery production, and analysts expect more attacks to come, potentially threatening the petrodollars that fund Russia's war effort.

"The attacks demonstrate a growing willingness to disrupt international oil markets, potentially adding to upward pressure on oil prices," wrote JPMorgan Chase & Co. analysts. led by Natasha Kaneva, in a note referring to Primorsk. Russian refinery production has now fallen below 5 million barrels per day, the lowest since April 2022, the company said.

Meanwhile, the European Union is considering sanctions against companies in India and China that enable Moscow's oil trade as part of a new package of restrictions. Washington has previously implied that it will not follow through on threats to punish Russian oil unless Europe does the same.

Elsewhere, Israel launched airstrikes on the Yemeni port city of Hodeida, according to the Associated Press. The moves threaten to escalate the conflict in the Middle East and jeopardize supplies from a region that produces about a third of the world's crude oil. Oil futures have traded in a narrow range over the past month, constrained by opposing forces: geopolitical tensions and weakening fundamentals.

The ahead-of-schedule return of OPEC+ supply has prompted the International Energy Agency (IEA) to forecast a record-breaking supply glut next year.

Commodities, including oil, may find support from the Federal Reserve's expected interest rate cut this week, with the prospect that monetary easing will stimulate the US economy and boost energy demand.

However, several oil market metrics are showing weakness. The opening spread for WTI—the difference between the two nearest contracts—was at 36 cents a barrel on Tuesday, down from nearly $1.50 two months ago, narrowing a bullish structure known as backwardation. (alg)

Source: Bloomberg