Oil rises towards multi-year high on Russia Ukraine fears

Oil prices are heading higher amid fears of supply disruption in an already tight market. Geopolitical tensions, EIA data & Fed rate decision in focus.

Energy 3

Oil rises with Russia-Ukraine, Fed & EIA data in focus

Oil prices rallied over 2.7% in the previous session and are climbing higher again today, finding support from escalating geopolitical tensions in eastern Europe and the middle east.

Oil traders are monitoring developments in Eastern Europe closely amid growing fears of a potential Russian invasion into Ukraine. These fears have hurt risk sentiment driving stocks lower whilst lifting the price of oil.

Russia- Ukraine

The Russia Ukraine conflict matters to the energy market for two reasons. Firtly, Ukraine is a transit hub for Russian oil and gas. The country is part of a critical route for oil flows to Eastern Europe and EU fringes. Should Russia limit these flows, oil prices rise.

Secondly, the future of Nord Stream 2 gas link could rest on affairs in Ukraine. We saw last year that surging gas prices, due to limited supply can boost oil prices, as an alternative energy source.

Middle East

Separately in the middle east oil infrastructure in UAE was attacked at the start of the week by Yemen’s Houthi movement. The threat of further attacks also hangs over the markets.

OPEC+ struggle to ramp up output

These developments come amid a market which is already experiencing tight supply. The OPEC+ group have struggled to increase output to reach the 400,000 barrels per day more upwardly revised production quota. The OPEC + group is due to meeting again on February 2.

Stockpile draw

The underlying tightness in the market is being reflected in inventory data. The API crude stockpile report revealed that stockpiles fell by 872,000., significantly more than the 400,000 forecast, boosting prices.

EIA stockpile data is due later.

The oil market is well supported by rising demand and tight supply, analysts at Goldman Sachs, along with other investment banks see oil prices reaching $100 in the not-too-distant future.

Today, attention will be on Russia Ukraine developments, and also the Fed. A more hawkish sounding Fed could raise concerns over the growth outlook and boost the US dollar, dragging oil prices lower.

Learn more about trading oil

Where next for oil prices?

Oil trades within an ascending channel dating back to December 20. The price is extending its rebound from a two week low of $81.80 and has retaken the 50 sma on the 4 hour chart. The MACD supports further upside.

Resistance can be seen at $87.03 the multiyear high reached 20th January with a break through here opening the door to gains towards $88 on and on to $90 the psychological level.

On the flip side, a break below $84.57 the 50 sma could negate the near-term uptrend. A move below $81.74 is needed for sellers to change the near term, bias.

oil chart

 

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