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Futures Movers: Oil prices up sharply, on track for a fourth straight weekly gain

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Oil futures moved up sharply on Friday, on track for a fourth straight weekly gain, with rising tensions between Russia and Ukraine boosting concerns over a potential disruption to global crude supplies.

Traders also remained upbeat over energy demand prospects as widespread lockdowns tied to omicron fail to materialize.

Russia began moving tanks and other military equipment westward toward Ukraine from its Far East bases as diplomats held negotiations over the crisis, The Wall Street Journal reported Friday, citing U.S. officials and social-media reports.

Also on Friday, the Associated Press reported that a cyberattack left a number of Ukrainian government websites temporarily unavailable. Ukrainian Foreign Ministry spokesman Oleg Nikolenko told the news agency that while it was too soon to discover who’s behind the attack, “there is a long record of Russian cyber assaults against Ukraine in the past.”

“The emerging crisis between Russian and Ukraine raises political risk premium,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

““The emerging crisis between Russian and Ukraine raises political risk premium.””

— Manish Raj, Velandera Energy Partners

“Whereas the Russian-Ukrainian crisis directly affects the regional natural gas prices, crude oil prices are generally aloof, since little Russian oil transits through Ukraine,” he said. “Still, the possibility of an armed conflict is a serious development, and has wide geopolitical ramifications, thereby boosting oil price premiums.”

West Texas Intermediate crude for February delivery CL00, +2.24% CLG22, +2.24% rose $1.74, or 2.1%, to $83.86 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark on track for a 6.3% weekly gain. March Brent crude BRN00, +1.99% BRNH22, +1.99%, the global benchmark, was up $1.54, or 1.8%, at $86.01 a barrel on ICE Futures Europe, headed for a more than 5% weekly advance.

Read: Tensions between Russia and Ukraine aren’t fully priced into commodities

Oil markets have been taking comfort from a boost in demand optimism, said Raj. Many oil demand centers, specifically Spain and the broader European Union countries, have “started to perceive COVID as a endemic,” which implies that they are “learning to live with COVID rather than impose sporadic lockdowns.”

Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, stuck to a plan to incrementally boost production, resisting pressure from the Biden administration and others to speed up increases. At the same time, some OPEC members have failed to meet boosted quotas.

Supply expectations continue to call for increased production from OPEC+ and U.S. shale producers in the months ahead, said Robbie Fraser, global research & analytics manager at Schneider Electric, in a note.

“However, geopolitics and unplanned disruptions have added support to prices at least for the near-term,” he said. “Unrest in countries like Libya and Kazakhstan caused some strong, but likely temporary, production losses in recent weeks, while the chances of a breakthrough around a renewed Iranian nuclear deal have again faded.”

“The net result is mixed conditions that in some ways were reflected by this week’s [Energy Information Administration] report, which showed a stronger decline in U.S. crude stocks that was largely countered by a significant build for gasoline stocks,” said Fraser. 

Oil prices traded higher Friday despite news of a potential release of crude from China’s strategic reserves and a weekly rise in the number of active U.S. oil drilling rigs.

Reuters reported that China will release oil near the Lunar New Year, which falls on Feb. 1, as part of an effort by global consumers coordinated by the U.S. And Baker Hughes BKR, +4.07% said Friday the number of active U.S. rigs drilling for oil was up by 11 to 492 this week. That followed a rise of just one oil rig the week before, and marked the biggest weekly climb since October, Baker Hughes data show.

Some analysts see scope for oil prices to take a breather near current levels.

“While the outlook for the global oil market has improved in recent weeks with a smaller surplus now expected in 2022, the developments have likely not been bullish enough to push futures to new multiyear highs just yet,” said analysts at Sevens Report Research, in Friday’s newsletter.

“To be clear, the long-term uptrend in oil remains very much intact right now, but oil has become near-term overbought,” they said. “As such we expect the market to consolidate some here after WTI has rallied more than 25% since the Dec. 20 lows.”

Among the petroleum products traded on Nymex, February gasoline RBG22, +1.70% tacked on 1.6% to $2.423 a gallon, eying a more than 5% rise for the week. February heating oil HOG22, +1.27% was also up 0.9% at $2.633 a gallon, poised for a weekly climb of over 6%.

Natural-gas futures, meanwhile, saw their February contract NGG22, -0.54% trade 0.1% lower at $4.266 per million British thermal units after dropping 12% on Thursday. For the week, however, prices were set for a nearly 8% climb.

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