Oil Prices Strike New High as Supply Risks Mount

Oil prices strike hit an all-time high on concerns that an escalation in conflict between Russia and Ukraine could disrupt supply in an already tight market.

West Texas Intermediate futures broke through an earlier oil price high for the year set in April by ending the session above $84 per barrel. Investors’ attention was diverted to fuel stockpiles that decreased by the most in three months as prices held onto gains despite US government data showing that crude inventories increased by about 5 million barrels last week.

As a result of low product inventories, the demand-concern narrative is not a topic at the moment, according to Giovanni Staunovo, an analyst at UBS Group AG. Oil is being driven more by a narrative of market tightness. After crude breached its April high, technical factors are also helping to support prices, he added.

The risk to Russian flows from the Black Sea is the most recent supply threat, following Ukrainian President Volodymyr Zelenskiy’s threat to retaliate against an OPEC+ producer for “blocking our waters.”The comments came after Ukraine used a drone to attack an oil tanker over the weekend.

Important market indicators have been indicating tighter markets lately. On Wednesday, the WTI crude nearest timespread and its Brent equivalent both increased. Cushing, Oklahoma, a major storage hub, has seen a decrease in stockpiles for five out of the last six weeks.

In response to commitments by OPEC+ heavyweights Saudi Arabia and Russia to reduce supply, oil has risen since late June, but there are still headwinds. The Energy Information Administration on Tuesday reduced its prediction for US product consumption this year as China’s economic recovery remains sluggish.

Fawad Razaqzada, a market analyst at City Index and Forex.com, said that the fact that WTI has broken the post-OPEC high of $83.50 made in April shows that those who had been pessimistic or doubtful of the group’s efforts succeeding have been proven wrong. As long as there are no significant concerns about demand, oil prices should continue to rise; therefore, a move up to $85 looks increasingly likely from here.

The oil market, which is anticipated to tighten through the second half of the year, will be covered in reports from OPEC and the International Energy Agency later this week.

Concerns that an escalation in the conflict between Russia and Ukraine could disrupt supply in an already constrained market caused oil prices to reach an all-time high.

The rising oil prices are likely to have two effects on the Indian oil market.

The first effect will be higher fuel prices for Indian consumers. As a result, the Indian government will be under financial strain because it will have to spend more on fuel subsidies. The cost of importing oil will increase for Indian refiners, which could result in higher prices for refined goods like petrol and diesel.

To lessen the effect of rising oil prices on consumers, the Indian government is likely to take action. For instance, it might boost fuel subsidies or give consumers tax breaks. The impact of these actions, however, will be limited, and the increase in oil prices will probably hurt the Indian economy.

India needs to lessen its reliance on imported oil over the long term. Increasing domestic oil production, making investments in renewable energy sources, and enhancing energy efficiency can all help with this. However, it will take time to put these measures into place, and in the interim, India will have to deal with the high cost of oil.

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Overall, the rising oil prices are a major challenge for the Indian economy. The government needs to take steps to mitigate the impact of these prices, but there is no easy solution.