OIL FUTURES: Crude rises on geopolitical risk, potential supply disruptions

Crude oil futures rose in mid-morning Asian trade Nov. 21 as investors factored into their outlook the likelihood of Ukraine attacking Russia's oil and energy infrastructure and its potential impact on the oil supply chain.

At 11:15 am Singapore time (0315 GMT), the ICE January Brent futures contract rose 29 cents/b (0.40%) from the previous close to $73.10/b, while the NYMEX January light sweet crude gained 30 cents/b (0.44%) to $69.05/b.

This comes after the front-month ICE Brent contract fell 99 cents/b, or 1.34%, to settle at $72.81/b at the market close Nov. 20 on some bearish sentiment. However, the complex gained strength after market participants assessed the risk of oil supply disruptions to be more significant than earlier following an escalation of the Russia-Ukraine conflict.

"Having fired a US-made missile into Russia earlier in the week, there are reports that Ukraine has now fired British-made missiles into Russia," ING commodity strategists Warren Patterson and Ewa Manthey said in a note drafted Nov. 21.

"For oil, the risk is if Ukraine targets Russian energy infrastructure, while the other risk is uncertainty over how Russia responds to these attacks," Patterson and Manthey continued.

However, there were also reports of Iran halting its stockpiling of uranium, which served to ease some of the war risk in the Middle East.

"Iran's pledge to stop stockpiling uranium does counter some of the geopolitical risk, with it potentially reducing some of the supply risks related to Iran ahead of [US] President-elect Trump entering office," Patterson and Manthey added.

US crude stockpiles build

Limiting the upside for the complex was the US crude oil inventories, which rose in the week ended Nov. 15 as lower refinery runs offset stronger exports.

US commercial crude stocks climbed 550,000 barrels to 430.29 million barrels over the week to Nov. 15, Energy Information Administration data showed. Inventories now stand 4.6% behind the five-year average for this time of year, up from 4.4% the week prior.

The build came in well below recent market expectations. American Petroleum Institute data released late Nov. 19 showed crude stocks increasing by 4.75 million barrels over the period.

"Crude inventories rose for the third consecutive week, driven by a surge in imports along the Gulf Coast that more than offset a rebound in exports. It's not just a supply glut — it's a confidence killer for any bullish momentum that might have tried to build," SPI Asset Management's Managing Partner Stephen Innes said Nov. 21.

Market participants said they are also monitoring China, the world's largest crude importer, which is signaling weak domestic demand.

"With China's economic engine sputtering at partial capacity and electric vehicles sweeping across continents, the fuel for old-school oil rallies is in short supply," Innes continued.

In the near term, however, investors continue to closely watch the mounting tensions in the Kievan Rus region, and conflicts in the Middle East for further cues.

"These geopolitical risks remain [as a] flickering upside, but it's hard to ignore the overarching bearish sentiment," SPI's Innes said.

Dubai swaps

Dubai crude swaps dropped from the previous close in mid-morning Asian trade Nov. 21, while the intermonth spreads widened over the same period.

The January Dubai swap was pegged at $71.68/b at 10 am Singapore time (0200 GMT), dipping 40 cents/b (0.55%) from the Asian close Nov. 20.

The December-January Dubai swap intermonth spread widened 2 cents/b to 27 cents/b over the same period, while the January-February intermonth spread was pegged at 26 cents/b, widening by 1 cent/b.

The January Brent/Dubai EFS was pegged at $1.47/b, steady from the previous Asian close.