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Oil climbs on concerns Russia political issues may impact supply

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SINGAPORE  – Oil prices rose in early Asian trade on Monday, June 26, 2023, after a failed mutiny by Russian mercenaries over 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 crude futures rose 95 cents, or 1.3%, to $74.80 a barrel by 2300 GMT on Sunday. U.S. West Texas Intermediate (WTI) crude was at $70.04 a barrel, up 88 cents, or 1.3%.

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.

RBC Capital Markets analyst Helima Croft said there were concerns that Putin would 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 impacted Russian output,” she added in a note on Sunday.

Domestic volatility

Goldman Sachs analysts said markets may price a moderately higher probability that domestic volatility in Russia leads to supply disruptions or has a sizable negative impact on oil supply in the future.

However, the impact may be limited because spot fundamentals have not changed, and because any hits to financial risk sentiment or to oil demand from increased uncertainty may provide an offset, the Goldman Sachs analysts added in a note.

Both Brent and WTI fell about 3.6 percent last week on worries that further interest rate hikes by the U.S. Federal Reserve could sap oil demand at a time when 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.

TAGS: fuel prices, Oil Prices, Russia
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