Crude builds on gains as Ukraine takes centre stage

Oil extended gains to seven-year highs above $90 a barrel on Thursday as the Ukraine crisis outweighed clear signs that the US Federal Reserve will tighten monetary policy.

Brent crude futures were up 89cs, or 1%, at $90.85 a barrel by 12.17pm GMT, while West Texas Intermediate rose 87c, or 1%, to $88.22.

Crude prices had surged on Wednesday, with Brent climbing above $90/bbl for the first time in seven years on tensions between Russia and the West. Russia, the world’s second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning fears that energy supplies to Europe could be disrupted.

Both contracts were lower in early trading after the US Federal Reserve said on Wednesday that it is likely to raise interest rates in March and plans to end its bond purchases that month in its battle to tame inflation.

The dollar strengthened after the announcement, making oil more expensive for buyers using other currencies.

“A more pronounced price slide [so far on Thursday] is being prevented by the Ukraine crisis, as there are still concerns that Russian oil and gas deliveries could be hampered in the event of a military escalation,” Commerzbank said after the morning price dip.

Market attention is also turning to the February 2 meeting of Opec and allies led by Russia, a group known as Opec+. The group is likely to stick with a planned increase to its oil output target for March, several Opec+ sources said. 

The group has raised its output target each month since August by 400,000 barrels a day as it unwinds record production cuts made in 2020. However, it has faced capacity constraints that have prevented some members from producing at their quota levels.

Still, an increase in crude oil and petroleum inventories in the US alleviated some of the concerns about supply.

Crude inventories rose by 2.4-million barrels last week, the Energy Information Administration said on Wednesday. That compared with expectations of a decline of 728,000 barrels in a Reuters poll of analysts.

Petroleum stockpiles rose by 1.3-million barrels, the most since February 2021.

Reuters