Oil Price Forecast: Russia’s Political Instability Sparks Supply Worries

Highlights

• Concerns over political instability in Russia boost oil prices.
• Russian revolt raises fears about oil supply disruptions.
• Geopolitical risks and market factors create a mixed outlook for oil prices.

Overview

Oil prices surged on Monday as concerns over political instability in Russia and its potential impact on oil supply gripped the market. The weekend’s revolt by Russian mercenaries heightened fears about President Vladimir Putin’s grip on power and the stability of one of the world’s largest oil producers.

U.S. West Texas Intermediate crude (WTI) futures initially rose by as much as 1.3% before retracing slightly. Moscow averted the clash with the mercenary group Wagner, but the incident raised questions about potential disruptions in Russian oil supply.

Geopolitical Risk Rises Amid Russian Instability

While consultancy Rystad Energy does not expect a significant increase in oil prices due to the “short-lived event,” it emphasized that geopolitical risk has risen with internal instability in Russia. Concerns arose that the declaration of martial law could hinder workers’ access to major loading ports and energy facilities, potentially resulting in a halt to millions of barrels of exports.

White House Engages to Safeguard Oil Supply

The White House engaged with producers to secure contingency plans in case of Russian output impact. Goldman Sachs acknowledged higher probability of supply disruptions due to Russian volatility. Impact may be limited as spot fundamentals remain stable.

Market Challenges: Rates, China Recovery

In addition to the geopolitical concerns, last week’s 3.6% drop in WTI prices was driven by worries about potential interest rate hikes by the U.S. Federal Reserve, which could dampen oil demand, coupled with disappointing economic recovery in China, a major consumer of oil and industrial metals. The combination of these factors has created a challenging environment for commodity markets, particularly in the oil sector.

Short-Term Outlook:  Heightened Volatility

Overall, with mounting political uncertainties in Russia and existing market factors at play, oil prices face a mixed outlook. Traders will closely monitor developments in Russia and assess their potential implications for global oil supply. Heightened volatility is to be expected.

Technical Analysis

The current market sentiment for WTI Crude Oil is bearish based on the analysis. The 4-hour price is slightly lower than the previous close, indicating a short-term downward movement.

The price is below both the 200-4H and 50-4H moving averages, signaling a bearish trend. The 14-4H RSI is below the neutral level but not yet oversold, suggesting a moderate bearish sentiment.

The main support area is between $68.31 and $67.37, while the main resistance area is between $72.75 and $73.55. Overall, the market is currently showing signs of bearishness, with sellers potentially exerting more influence than buyers.