Oil Gains on Supply Concerns Amid Ukraine Conflict, Fed Easing Hopes

• Oil prices rose on supply fears; Brent $68.52,WTI $65.02 amid Fed easing hopes.

• Ukraine drone strikes cut 17% of Russia’s oil capacity; attacks intensify on both sides.

• China’s new order fuels tensions; OPEC+ output steady; IEA warns of supply surplus.

Oil prices climbed on Tuesday as fears over supply interruptions intensified due to the escalating Russia-Ukraine conflict. Meanwhile, the market awaited key U.S. employment figures that could influence potential interest rate reductions. By 06:17 GMT, Brent crude rose by 37 cents, or 0.54%, reaching $68.52 per barrel. U.S. West Texas Intermediate(WTI) crude increased $1.01, or 1.58%, to $65.02 per barrel.

Notably, WTI futures did not trade on Monday because of the U.S. Labor Day holiday. Priyanka Sachdeva, senior market analyst at Phillip Nova, noted short-term gains stem from expectations of Federal Reserve easing, which improves demand sentiment.

Recent drone strikes by Ukraine have shut down facilities representing approximately 17% of Russia’s oil-processing capacity, equivalent to 1.1 million barrels daily, according to Reuters. Ukrainian President Volodymyr Zelenskiy announced plans for further deep strikes into Russian territory following weeks of intensified attacks on Russian energy infrastructure.

Both Russia and Ukraine have increased airstrikes after more than three years of conflict: Russia targets Ukrainian energy and transport systems, while Ukraine focuses on Russian oil refineries and pipelines. Daniel Hynes, senior strategist at ANZ, highlighted ongoing high risks to Russian energy infrastructure amidst continued assaults.

China’s push for a new global security and economic order emphasizing the “Global South” adds to geopolitical uncertainties. President Xi Jinping presented this vision during a summit involving leaders from Russia and India. China and India remain the largest importers of Russian crude oil; although the U.S. has imposed tariffs on India for these purchases, it has spared China. Investors are now watching the upcoming OPEC+ meeting on September 7 for indications on production adjustments.

The consensus expects output to remain steady after a period of easing supply cuts over the past six months. However, the International Energy Agency (IEA) notes that supply growth is currently outpacing demand due to tariff concerns and economic impacts. ING analysts suggest the surplus will likely discourage additional supply increases but warn that reinstated cuts remain a significant risk.