Oil prices record weekly gain on fears of Ukraine war escalation

Vladimir Putin says US and UK aggravated conflict by allowing Kyiv to use American and British weapons against targets in Russia

The site of a Russian missile strike in Dnipro, Ukraine. BMI expects Brent to average $78 next year. Reuters

Oil prices settled higher on Friday and recorded a weekly increase as traders feared a major escalation in the Ukraine war.

Brent, the benchmark for two thirds of the world's oil, was up 1.27 per cent at $75.17 a barrel at the end of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, closed up 1.63 per cent at $71.24 a barrel.

Brent gained 5.8 per cent this week, while WTI rose by 6.5 per cent.

Russia fired a new kind of ballistic missile at the Ukrainian city of Dnipro on Thursday, in a move the EU described as a “clear escalation”.

The Pentagon described the weapon as an "experimental" intermediate-range ballistic missile and said Moscow notified the US shortly before its launch, on nuclear risk-reduction channels.

Russian President Vladimir Putin said the US and the UK had aggravated the conflict by allowing Kyiv to use American and British weapons against targets in Russia.

“[Oil] prices have been buoyed by escalating geopolitical risks stemming from the Russia-Ukraine war,” BMI, a Fitch Solutions company, said on Friday.

“Any risk premium, though, will likely prove fleeting, with investors unlikely to bet on a sustained rally in Brent against a deteriorating fundamental backdrop,” it said in a research note.

BMI expects Brent to average $78 next year but may revise its forecast downwards depending on the outcome of the next Opec+ meeting on December 1.

The alliance of oil producing countries has twice delayed bringing back 2.2 million barrels per day (bpd) of supply back to the market as oil prices continue to slump amid expectations of a glut next year.

The International Energy Agency has said that there will be a surplus of 1 million bpd in 2025, driven by weakening Chinese demand and growing supply from non-Opec+ countries.

Downside risks have also risen with President-elect Trump’s victory in the US elections in November, with a potential increase in trade tensions threatening both sentiment and demand, BMI said.

Gas prices surge

European natural gas prices surged this week on supply concerns caused by Gazprom's halt of gas supplies to Austria and lower-than-usual storage levels.

The Russian state energy company’s decision followed an arbitration that awarded Austria’s OMV €230 million due to a contractual dispute.

Dutch Title Transfer Facility gas futures, the benchmark European contract, were trading at €48.76 ($51.17) per megawatt hour on Friday, up nearly 11 per cent since last week.

“Even though Europe has a reduced exposure to Russia, cutting whatever was left of the Russian gas supplies will reduce the amount of supplies on the continent and threaten to boost gas prices as reserves decline,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

OMV’s chief executive told The National last month that the company was “fully prepared” to replace Russian pipeline gas delivered through Ukraine, should Kyiv not extend its transit agreement with Moscow when it expires this year.

About 15 billion cubic meters of Russian gas are transported through Ukraine, with a significant portion typically purchased by Austria and Slovakia.