WTI Hits $71 as Geopolitical Risks Mount

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 more than 1% to settle above $71 a barrel, an increase of more than 6% for the week, while Brent settled above $75 for the first time since Nov. 7. The Russia-Ukraine conflict has rapidly intensified following months of bloody attrition, with the use of longer-range 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 unexpectedly shrank, a sign of the risks from heightened discord over trade.

Still, bullish signs for crude emerged this week. WTI’s nearest timespread strengthened to 48 cents — indicating tighter supplies — after briefly flipping into a bearish contango structure earlier this 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.

Oil Prices:

• WTI for January delivery was up 1.6% to settle at $71.24 a barrel.
• Brent for January settled 1.3% higher at $75.17 a barrel.