Oil rises on fears Russian political instability may hit supply

Singapore — Oil prices rose on Monday after a revolt by Russian mercenaries at the weekend raised concerns about political instability in Russia and the potential impact on oil supply from one of the world’s largest producers.

Brent and US West Texas intermediate crude (WTI) futures were both up 0.4% on Monday, paring some gains after rising as much as 1.3% in early Asian trade. Brent was trading 27c higher at $74.12 a barrel at 2.34am GMT (4.34am), while WTI was up 28c at $69.44 a barrel.

A clash between Moscow and Russian mercenary group Wagner was averted on Saturday after the heavily armed mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance on the capital.

However, the challenge has raised questions about President Vladimir Putin’s grip on power and concerns about possible disruption of Russian oil supply.

Consultancy Rystad Energy said in a note late on Sunday it does not expect to see a significant increase in oil prices due to the “short-lived event”.

“We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Rystad said.

RBC Capital Markets analyst Helima Croft said there are concerns that Putin will declare martial law, preventing workers from showing up to major loading ports and energy facilities, potentially halting millions of barrels of exports.

“It is our understanding that the White House was actively engaged yesterday in reaching out to key domestic and foreign producers about contingency planning to keep the market well supplied if the crisis affected Russian output,” she added in a note on Sunday.

Disappointing recovery

Goldman Sachs analysts said markets may price a moderately higher probability that domestic volatility in Russia leads to supply disruptions. However, the impact may be limited because spot fundamentals have not changed, the analysts added.

Brent and WTI fell about 3.6% last week on worries that further interest rate hikes by the US Federal Reserve could sap oil demand while China’s economic recovery has also disappointed investors after several months of softer-than-expected consumption, production and property market data.

“China’s economic growth has been a nightmare for commodity markets, particularly in oil and industrial metals,” CMC Markets analyst Tina Teng said in a note.

Reuters