Crude oil futures rebound after US advisory on Ukraine

Crude oil futures rebounded in mid-morning trade in Asia Jan. 24 following a US advisory for its citizens to leave Ukraine, and after oil prices closed lower on Jan. 21, in line with selloffs in the financial markets in view of an impending US rate hike.

At 11:50 am Singapore time (0350 GMT), the ICE March Brent futures contract was up 81 cents/b (0.92%) from the previous close at $88.70/b, while the NYMEX March light sweet crude contract rose 71 cents/b (0.83%) at $85.85/b.

The US Department of State on Jan. 24 has authorized government employees and ordered family members of its embassy staff in Ukraine to leave the country citing rising tension.

"There's an obvious fear premium in the [crude] complex especially on account of the latest escalation of tensions between the US and Russia, on account of Ukraine," Vandana Hari, founder and CEO of Vanda Insights said.

"US sanctions on Russia are currently being ruled out and a military conflict is not our base case but the oil complex is currently ultra-sensitive to even the slightest hints of a supply disruption," Hari added.

Oil prices have risen by more than 10% in 2022 so far amid concerns over weather and geopolitical supply concerns in Canada, Kazahkstan and Libya, analysts noted.

"The underlying supply concerns are also strong, as OPEC+ have been falling sizeably short of their monthly targets and the global spare capacity and inventory cushion is also thin," Hari said.

OPEC members, which are subject to production targets, pumped some 620,000 b/d below their combined caps in December, equivalent to a compliance rate of 117%, according to S&P Global Platts data.

Saudi Arabia's crude oil stocks, which have now almost halved over the last three years, fell by 4.43 million barrels to a new record low of 132.38 million barrels in November, according to the Joint Organizations Data Initiative.

"Sentiment was bolstered by robust demand amid a surge in COVID-19 cases globally. Despite reaching record levels in many parts of the world, [COVID-19] infection rates haven't impacted demand for oil as much as the market had been expected," ANZ analysts said in a Jan. 24 report.

Analysts cautioned that concerns of a tightening in Federal Reserve policy on Wednesday could impact outlook on the economy.

"The next few trading sessions could be difficult for energy traders as oil prices may move more so on investor positioning ahead of Wednesday's FOMC policy decision and over a handful of brewing geopolitical risks, that include Russia-Ukraine tensions, Iran nuclear talks, and developments with global handling over North Korea," senior market analyst Edward Moya at OANDA wrote Jan. 22.