Oil prices head for weekly gain on Russia-Ukraine tensions

Oil prices steadied Friday, heading for a positive week as increased concerns over Russia and Ukraine saw traders attach a greater risk premium to crude. 

At 09:25 ET (14:25 GMT), Brent oil futures expiring in January fell 0.1% to $74.19 a barrel, while West Texas Intermediate crude futures rose 0.1% to $70.19 a barrel.

Both contracts were trading around 4% higher this week.  Russia-Ukraine tensions put oil on track for weekly gain

Oil’s gains this week were driven by concerns over supply disruptions stemming from the Russia-Ukraine war, especially as Kyiv began using Western-made long-range missiles. 

Russia responded by lowering its threshold for nuclear retaliation, as well as reportedly firing a hypersonic medium-range ballistic missile at a Ukrainian target, with President Vladimir Putin warning that more could follow. 

Oil markets are particularly concerned that Ukraine could damage Russia’s energy infrastructure, disrupting its oil production and tightening global supplies. This notion has been a key point of support for crude. 

But oil also benefited from some bargain buying after logging steep losses in October on concerns over slowing demand, especially in top importer China. 

Pressuring prices on Friday, euro zone business activity took a surprisingly sharp turn for the worse this month as the bloc's dominant services industry contracted and manufacturing sank deeper into recession. OPEC+ could postpone production hike - Reuters

The Organization of Petroleum Exporting Countries, and allies, a group known as OPEC+, is considering postponing a planned production increase to next year, Reuters reported this week, amid persistent concerns over slowing demand and weakening prices.

The cartel had initially planned to begin increasing production from late-2024, but has steadily postponed these plans earlier in the year. The cartel is expected to do so again when it meets on December 1. 

Increasing supply outside the OPEC is also expected to weigh on oil prices in the coming year, with analysts forecasting the possibility of a supply glut. This forecast has also kept the OPEC wary of increasing production. Goldman sees upside risks to Brent near term

Brent oil prices are on track to average roughly $80/bbl this year, analysts at Goldman Sachs said, in a note dated Nov. 21, but have declined to the low-to-mid $70s despite a 2024 deficit and geopolitical uncertainty. 

“This reflects market confidence in a large 2025 surplus, which has depressed positioning and valuation,” the bank said.

Its base case is that Brent stays in a $70-$85 range, with high spare capacity limiting price upside, and the price elasticity of OPEC and shale supply limiting price downside.  

However, the risks of breaking out are growing, as Goldman sees upside risks to prices in the short term, with Brent rising to the mid-$80s in the first half of 2025 if Iran supply drops one million barrels a day on tighter sanctions enforcement. 

The medium-term price risks, however, skew to the downside given high spare capacity. 

“We estimate that Brent drops to the low $60s in 2026 in a 10% across-the-board tariff scenario or if OPEC supply rises through 2025,” Goldman added.

(Ambar Warrick contributed to this article)

Source: Investing.com