Oil Prices Surge Amid Escalating Attacks on Russian Energy Facilities

The oil market saw a gradual climb as Brent crude oil futures approached the $86 per barrel mark on Monday. This increase, building on the momentum from the previous week, was driven by heightened attacks by Ukraine on Russian energy installations. Brent crude oil futures for May delivery experienced a significant uptick of 62 cents, or 0.7%, reaching $85.96 a barrel by 1019 GMT.

At the same time, the April contract for U.S. West Texas Intermediate (WTI) crude rose by 70 cents, or 0.9%, to $81.74. However, trading remained subdued as the contract neared its expiration date in the upcoming days. Conversely, the more active May delivery contract climbed by 71 cents, or 0.9%, reaching $81.29.

The strikes on Russian refineries during the prior week added an additional $2-$3 per barrel of risk premium to crude oil prices. These ongoing attacks, which persisted over the weekend, continued to exert pressure on prices. Notably, one such strike led to a brief fire at the Slavyansk refinery in Kasnodar, which processes approximately 170,000 barrels of crude oil per day. Consequently, around 7% of Russian refining capacity was effectively halted in the first quarter. These refining complexes play a pivotal role in processing and exporting various crude varieties to markets such as China and India.

Against the backdrop of escalating geopolitical tensions and their repercussions on oil prices, market focus this week primarily centers on potential adjustments in the monetary policies of major economies. Many central banks have maintained elevated interest rates for an extended period to counter persistent inflationary pressures. The conclusion of the U.S. Federal Reserve's two-day meeting on Wednesday is eagerly awaited, as it is anticipated to provide clarity regarding the timing of interest rate adjustments. While the Fed is expected to keep rates unchanged this month, uncertainty looms over the possibility of an interest rate cut at the June meeting.

Lower interest rates have the potential to stimulate demand in the U.S., the world's largest oil consumer, thereby bolstering oil prices. Both oil contracts recorded gains last week, surging to their highest levels since November. This upward trajectory was partly fueled by the International Energy Agency's upward revision of its 2024 demand outlook, marking the fourth such revision since November. Despite the prevailing uncertainty surrounding geopolitical tensions and monetary policy adjustments, the oil market demonstrates resilience as it navigates through these challenges.

The ceasefire negotiations continue to fuel uncertainty, with underlying implications from various statements adding to frustration rather than offering any potential impact on oil prices.