By John Ikani
Political turmoil in Russia following a failed mutiny by Russian mercenaries has sparked concerns over oil supply, leading to a rise in oil prices during early Asian trade.
Brent crude futures climbed 1.3% or 95 cents, reaching $74.80 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 1.3% or 88 cents, hitting $70.04 a barrel.
Over the weekend, a clash between the Russian mercenary group Wagner and Moscow was avoided when the heavily armed mercenaries retreated from the city of Rostov.
However, the incident has raised questions about President Vladimir Putin’s control over the nation and potential disruptions to oil supply.
Analysts from RBC Capital Markets expressed concerns that Putin might declare martial law, hindering workers from accessing major loading ports and energy facilities. Such an action could halt millions of barrels of oil exports.
Helima Croft, an analyst at RBC Capital Markets, noted that the White House was actively engaging with key domestic and foreign producers to ensure contingency planning in case the crisis affected Russian output.
Goldman Sachs analysts also weighed in, suggesting that the markets might consider a higher probability of supply disruptions or a negative impact on oil supply due to the domestic volatility in Russia.
However, the analysts mentioned that the effect could be limited, considering that spot fundamentals have not undergone significant changes.
Also, any potential hits to financial risk sentiment or oil demand resulting from increased uncertainty could offset the impact.
Last week, both Brent and WTI experienced a 3.6% decline due to concerns about potential interest rate hikes by the U.S. Federal Reserve, which could dampen oil demand.
The disappointing economic recovery in China, reflected in softer-than-expected consumption, production, and property market data, further contributed to market worries.
Tina Teng, an analyst at CMC Markets, described China’s economic growth as a nightmare for commodity markets, particularly in oil and industrial metals.
The combination of these factors has left investors concerned about the future direction of oil prices.
