Oil prices experienced an uptick on Monday following an uprising by Russian mercenaries over the weekend, sparking worries about the potential for political instability in Russia and its impact on global oil supply.
Both Brent and U.S. West Texas Intermediate crude (WTI) futures recorded a 0.4% increase, although their earlier gains of up to 1.3% in early Asian trade were partially reduced. At 0234 GMT, Brent traded at $74.12 per barrel, up by 27 cents, while WTI stood at $69.44 per barrel, showing a gain of 28 cents.
The clash between Moscow and the Wagner Russian mercenary group was averted on Saturday when the heavily armed mercenaries withdrew from the southern city of Rostov as part of a deal that prevented their advance towards the capital. Nonetheless, this incident has raised concerns about President Vladimir Putin’s hold on power, casting doubts on the stability of Russian oil supply.
A recent note from consultancy Rystad Energy suggested that while the “short-lived event” was not expected to cause a significant increase in oil prices, the geopolitical risk arising from internal instability in Russia had indeed heightened.
RBC Capital Markets analyst Helima Croft expressed concerns that Putin might declare martial law, which could impede workers from reporting to major loading ports and energy facilities, potentially resulting in the disruption of millions of barrels of exports.
In a Sunday note, Croft added that the White House had been actively engaging with domestic and foreign producers to develop contingency plans, ensuring a well-supplied market in case the crisis impacted Russian output.
Goldman Sachs analysts acknowledged the possibility of markets assigning a slightly higher probability to domestic volatility in Russia leading to supply disruptions. However, they noted that the impact might be limited since spot fundamentals remained unchanged.
Last week, both Brent and WTI experienced a decline of approximately 3.6% due to concerns about potential interest rate hikes by the U.S. Federal Reserve, which could dampen oil demand at a time when China’s economic recovery has disappointed investors with softer-than-expected consumption, production, and property market data.
“China’s economic growth has been a nightmare for commodity markets, particularly in oil and industrial metals,” commented CMC Markets analyst Tina Teng in a note.
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