Oil prices edged higher this week, gaining more than 4% as geopolitical tensions and supply disruptions rattled global energy markets. The surge comes after Ukraine intensified attacks on Russia’s oil infrastructure, prompting Moscow to curb fuel exports and signaling the possibility of reduced crude output.
Oil Prices Hit Weekly Highs
Brent crude futures climbed 21 cents, or 0.3%, to settle at $69.63 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 32 cents, or 0.5%, to $65.30 by 0635 GMT. Both benchmarks are on track for their largest weekly gains since mid-June, when Brent jumped 11.7% and WTI rallied 13% during the Israel-Iran conflict.
The latest increase underscores how oil prices remain vulnerable to geopolitical shocks. Analysts point to Ukrainian drone strikes on Russian energy infrastructure and NATO’s stern warning to Moscow regarding future airspace violations as major catalysts behind the rally.
Russia’s Export Ban Adds Pressure
Deputy Prime Minister Alexander Novak announced that Russia would extend its gasoline export ban and impose a partial ban on diesel exports until the end of 2025. This policy decision has already tightened supply and pushed oil prices upward.
The reduced refining capacity in Russia is another factor weighing on global supply. Several Russian regions are experiencing fuel shortages, and Moscow is edging closer to cutting crude output altogether. Analysts warn that if the export ban continues and crude production falls, the global market could face a significant supply gap in the coming months.
Geopolitical Tensions and NATO’s Response
NATO’s recent statement that it is prepared to respond to further Russian violations of allied airspace has amplified geopolitical uncertainty. Analysts from ANZ Bank highlighted that the war in Ukraine, coupled with new sanctions risks, could create long-term upward pressure on oil prices.
In addition to regional instability, sanctions targeting Russia’s oil and gas industry could exacerbate shortages in the global market, limiting supply even further at a time when demand is expected to remain strong.
U.S. Economic Data and Oil Prices
Adding another layer to market dynamics, U.S. economic data showed stronger-than-expected growth in the second quarter. The Bureau of Economic Analysis reported that GDP grew at an annualized rate of 3.8%, up from earlier estimates.
This robust economic outlook has implications for oil prices. While growth suggests higher energy demand, it also makes the Federal Reserve more cautious about aggressive interest rate cuts. Last week, the Fed lowered rates by 25 basis points for the first time since December, signaling further cuts may come, but stronger economic data could slow this pace.
A slower pace of rate cuts could keep the U.S. dollar firm, which typically limits upside momentum in oil markets since crude is priced in dollars. Still, the supply shocks from Russia and Ukraine continue to outweigh these headwinds.
Kurdistan Oil Exports to Resume
One factor capping further gains in oil prices was the Kurdistan Regional Government’s announcement that oil exports would resume within 48 hours. This agreement could bring up to 500,000 barrels per day (kb/d) back to the global market, easing some supply concerns.
However, analysts argue that while the resumption of Iraqi Kurdistan’s oil exports is significant, it is unlikely to fully offset the disruptions caused by Russia’s restrictions and ongoing geopolitical instability in Eastern Europe.
Inventory Data Provides Additional Support
U.S. weekly crude inventories also showed a surprise decline, contributing to this week’s rally in oil prices. The unexpected drawdown highlighted strong demand, particularly as refiners ramp up activity ahead of the winter season. This has further tightened an already fragile balance between global supply and demand.
Outlook for Oil Prices
Looking ahead, oil prices are likely to remain volatile as traders weigh geopolitical risks against economic data and policy decisions. Key factors to watch include:
- The continuation of Ukrainian drone strikes on Russian energy infrastructure.
- The impact of Russia’s export restrictions on global fuel supplies.
- NATO’s actions in response to Russian military activities.
- The pace of U.S. interest rate cuts and their effect on global demand.
- The volume of oil exports from Kurdistan and Iraq.
With both Brent and WTI hitting their highest levels since August 1, the market’s sensitivity to geopolitical shocks remains evident. Analysts caution that if tensions escalate further or Russia significantly cuts crude output, oil prices could surge well beyond current levels.
The sharp rise in oil prices this week highlights the fragile balance of global energy markets amid geopolitical conflict and shifting supply dynamics. Russia’s decision to curb exports, Ukraine’s continued strikes on energy infrastructure, and NATO’s growing involvement have all fueled upward pressure. While factors like the resumption of Kurdistan oil exports and strong U.S. economic growth provide some balance, the outlook remains uncertain.
As the global economy adjusts to these disruptions, oil prices are expected to stay elevated and volatile, making energy policy and geopolitical developments critical areas for investors and governments to monitor.
