War Premium Returns to Oil Market After Biden’s Ukraine Decision

The war premium is back in the oil market, pushing prices higher after the Biden administration reportedly gave Ukraine the green light to use U.S.-manufactured long-range missiles to strike Russian territory.

Reuters reported the news on Sunday citing unnamed sources from the Biden administration, with the sources also saying that the government in Kiyv planned to take advantage of the decision in the next few days.

Russia has warned repeatedly that such a move by Washington would constitute a significant escalation in the war.

“Biden allowing Ukraine to strike Russian forces around Kursk with long-range missiles might see a geopolitical bid come back into oil as it is an escalation of tensions there, in response to North Korean troops entering the fray,” Ig analyst Tony Sycamore said, as quoted by Reuters.

Oil prices, meanwhile, were on the rise earlier today, with Brent crude trading at $71.33 per barrel and West Texas Intermediate at $67.20 per barrel. The benchmarks may well have further up to go if the Ukrainian government does go through with the long-range attacks on Russian territory as this would inevitably prompt retaliation.

On the other hand, “Market participants continue to fret over the prospects for higher supplies from the US and OPEC+”, Yeap Jun Rong, market strategist with IG Asia, told Bloomberg. “There’s not much of a bullish catalyst for oil prices to ride on.”

Weighing in on the potential development of the Ukraine war, Saul Kavonic noted to Reuters that “So far there has been little impact on Russian oil exports, but if Ukraine were to target more oil infrastructure that could see oil markets elevate further.”

Last week, oil prices booked a 3% slide following demand updates from OPEC and the IEA, which both signaled expectations of continued weakness with the possibility of a supply surplus.