- Ukraine’s aggressive attack on Russia this week targeted oil.
- Market participants worried about supply disruptions in the US due to cold weather.
- The FOMC minutes released on Wednesday showed concerns about inflation.
Oil prices hovered near a one-week high on Thursday amid tensions between Ukraine and Russia that could impact supply. At the same time, stalled peace talks between Russia and Ukraine lower the likelihood of a near-term end to the war. Meanwhile, cold weather in the US has increased the risk of tighter supply, further supporting oil prices.
Ukraine’s aggressive attack on Russia this week targeted oil, which could lead to supply disruptions. A tighter market is bullish for oil. The likelihood of a peace deal between Ukraine and Russia has decreased, as Ukraine claims that the US and Russia are making secret agreements.
At the same time, Russia is demanding more than Ukraine is willing to give for peace. Meanwhile, Trump exchanged words with Ukraine’s president, calling him a dictator. If the US fails to broker a peace deal, tensions will likely rise, keeping oil prices high.
Elsewhere, market participants worried about supply disruptions in the US due to cold weather.
Oil futures (Source: ICE, Nymex)
Moreover, reports show that OPEC might again delay unwinding its output cuts to keep oil prices up. Since last year, the major producers have maintained supply cuts, citing poor demand prospects that might weigh on oil. If these cuts continue, the market will remain relatively tight, which is bullish for oil.
Meanwhile, market participants also focused on Trump’s trade policies this week, which have raised fears of global trade wars. The US president proposed a new automobile tariff to impact major economies like the Eurozone. This follows tariffs on steel and aluminum imports. At the same time, markets expect tariffs on Mexico and Canada in March and reciprocal tariffs in April. These factors could trigger a global trade war, lowering risk appetite, harming the economy, and decreasing oil demand.
At the same time, these tariffs will likely boost the US economy by increasing demand for local goods. Additionally, local production will benefit from these tariffs. This will also boost inflation, forcing the Fed to elevate interest rates.
Notably, the FOMC minutes on Wednesday revealed inflation worries. Policymakers believe Trump’s trade policies will increase inflation. Therefore, there is a high chance they will maintain a cautious stance. High borrowing costs curb economic demand, hurting oil prices.
