Oil Advances on Rising Geopolitical Tensions From Iran, Russia

(Bloomberg) -- Oil rose as geopolitical tensions from Russia to Iran ratcheted higher while strength in equity markets increased the appeal of risk assets.

West Texas Intermediate climbed to around $71 a barrel, up roughly 5% for the week, while Brent topped $75. The Russia-Ukraine conflict has rapidly intensified following months of bloody attrition, with the use of longer-rage missiles by both sides this week. At the same time, Iran said it will increase its nuclear fuel-making capacity after it was censured by the UN’s International Atomic Energy Agency. 

A gain in equity markets also gave crude a boost, though the rally was capped by a stronger dollar that makes commodities priced in the currency less attractive. Euro-area business activity also unexpectedly shrank, a sign of the risks from heightened discord over trade.

Still, bullish signs for crude have emerged this week. WTI’s nearest timespread strengthened to 46 cents — indicating tighter supplies — after briefly flipping into a bearish contango structure last week for the first time since February. 

Oil has swung between weekly gains and losses since mid-October, with a strong dollar, ample supply and indications of weak demand providing headwinds. At the same time, geopolitical tensions — including the Kremlin’s revamp of its nuclear doctrine this week — have caused temporary gains but failed to provide an extended uplift in the face of widespread expectations of a crude surplus next year.

“The market is still complacent about geopolitical disruption risk,” Bob McNally, president of Rapidan Energy Group, said in a Bloomberg Television interview. “President Trump will be willing to crimp Russian energy exports to get leverage for deals he wants to cut.” 

The US, meanwhile, sanctioned Russia’s Gazprombank, closing a loophole that Washington kept open over the course of the war because the lender is key for energy markets. The penalties increase the risk of a cut-off of some of the remaining Russian gas flows to a handful of central European nations.

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