Oil prices rose on Monday after a weekend revolt of Russian mercenaries raised concerns about political instability in Russia and the potential impact on the oil supply of one of the world’s largest producers.
Brent crude futures were up 56 cents, or 0.8% at $74.41 a barrel by 0725 GMT. West Texas Intermediate crude (WTI) was up 44 cents, or 0.6%, at $69.44. Both benchmarks gained as much as 1.3% in early Asian trade.
The clash between Moscow and the mercenary group was averted over the weekend. A clash between Moscow and the Russian mercenary group Wagner was averted Saturday after heavily armed mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance to the capital.
However, the challenge, echoed by the media, raised questions about President Vladimir Putin’s power control and concerns about the possibility of disruption to Russia’s oil supply.
The geopolitical risk has undoubtedly increased due to internal instability in Russia. Since the internal affairs of the great powers involve delicate balances, it is useful to wait and see what the real target is. The short-lived nature of the event and its rapid recovery does not make us expect a significant increase in oil prices.
There are concerns about Russian President Vladimir Putin’s declaration of martial law. Putin’s declaration of martial law prevents workers from arriving at major loading ports and power plants and potentially may halt exports of millions of barrels.
Putin signed the ‘martial law’ law, which provides for fines and administrative detention of up to 30 days for violators of martial law laws. According to the law even if the actions do not contain crimes, a fine of up to 1000 rubles or administrative detention of up to 30 days may be imposed on citizens who do not comply with the martial law of the Russian Federation within the framework of the rules established by federal laws and other regulations. For officials, a fine of up to 2,000 rubles or administrative detention of up to 30 days will be imposed.
Apparently, the White House was actively engaged to reach out to key domestic and foreign manufacturers about contingency plans to keep the market in good shape over the weekend should the crisis affect Russian production.
Analysts said markets may be pricing in that domestic volatility in Russia is a little more likely to lead to supply disruptions. However, the impact is likely to be limited as spot fundamentals remain unchanged.
Both Brent and WTI fell nearly 3.6% last week on concerns that further US Federal Reserve rate hikes could dampen oil demand, while China’s economic recovery has also disappointed investors after several months of softer-than-expected consumption, production, and real estate market data.
According to analysts, China’s economic growth has been a nightmare for commodity markets, especially oil and industrial metals.
