Oil prices rose on Tuesday as disruptions in supply from Russia and the U.S. intensified. However, talks aimed at ending the war in Ukraine limited the gains, as a peace agreement could lead to increased oil supply from Moscow.
Brent crude futures increased by 62 cents, or 0.8%, to settle at $75.84 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose $1.11, or 1.6%, to $71.85 a barrel. The WTI contract had not settled on Monday due to a holiday and caught up with Brent’s gains on Tuesday.
The rise in oil prices followed a Ukrainian drone attack on a pumping station along the Caspian Pipeline Consortium (CPC) pipeline, which carries crude from Kazakhstan to global markets. Oil flows through the pipeline were reduced by 30-40%, according to Russian Deputy Prime Minister Alexander Novak. A 30% cut translates to a reduction of 380,000 barrels per day in supply, based on Reuters’ calculations.
UBS analyst Giovanni Staunovo noted that while Brent had already benefited from the CPC supply disruptions, the duration and extent of the disruption would determine its longer-term impact.
Further supply shocks hit the market on Tuesday. Russian officials said that stormy weather had forced a suspension of loadings at the Black Sea port of Novorossiisk, which is a key export hub. In February, exports from the port were revised upwards by 0.24 million metric tons, or about 590,000 barrels per day.
In the U.S., a cold snap has impacted oil production, particularly in North Dakota, the country’s third-largest producing state. The North Dakota Pipeline Authority estimated a reduction of up to 150,000 barrels per day.
On the supply-demand balance, U.S. and Russian diplomats held a 4.5-hour meeting in Saudi Arabia to discuss ways to end the conflict in Ukraine. Ukraine was not represented at the talks, and Russia made tougher demands. If an agreement is reached, it could lead to the easing of sanctions on Russian oil.
Mizuho oil analyst Robert Yawger said the market remains cautious as it waits for developments on the Russia-Ukraine situation, adding that any resolution is unlikely in the immediate future.
U.S. oil inventory and trade data due Thursday may show a decrease in net imports of crude oil last week, which could provide some support for prices. However, expectations of heavy refinery maintenance starting in March could dampen demand in the coming weeks.
Scott Shelton, an energy specialist at United ICAP, noted that with refinery turnarounds expected to be heavy, there is ample crude on the market, which could limit price increases.
A preliminary Reuters poll suggested that U.S. crude oil and gasoline stockpiles likely increased last week, adding to the cautious outlook. Traders are also awaiting clarity on whether OPEC+ will go ahead with plans to increase oil supply from April or delay the decision further.
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