WTI briefly surpasses $87.00 level, eyes multi-year highs as geopolitical tensions eyed

Front-month WTI futures hit fresh highs for the week above the $87.00 level on Wednesday, as a broad risk appetite recovery combined with ongoing geopolitical and OPEC+ supply concerns underpinned the price action. WTI is now nearly $4.50 or over 5.0% higher versus Monday’s lows near $82.00 per barrel and earlier in the session when prices surpassed the $87.00 mark, was only a whisker below last week’s multi-year highs at $87.90 per barrel. At current levels in the mid-$86.00s, WTI is trading higher by slightly more than $1.0 on the day.

“Anxiety over potential supply disruptions in the Middle East and Russia is providing bullish fodder for the oil market” said an analyst. “The market downside is limited due to heightened tensions between Russia and Ukraine and the threat to infrastructure in the UAE,” said another. To give context, tensions in Eastern Europe have escalated this week as Russia continues to amass troops near the Ukrainian border and as NATO has moved to beef up its Eastern European military presence. Some countries (like the UK) have been providing arms to Ukraine and most NATO/EU nations are threatening harsh economic sanctions should Russia invade Ukraine.

Some oil strategists have suggested that in a worst-case scenario where Russia did invade and Western powers took steps to sever the Russian economy off from the global market, sanctions on Russia energy exports could send oil prices well beyond the $100 per barrel mark. Meanwhile, tensions between the Saudi-led (sunni) coalition and regional Iran-backed (shia) militia groups have amped up over the past few weeks, with the Iran-backed Houthis in Yemen recently upping attacks on oil infrastructure in the UAE. Geopolitics is set to remain a key driver or oil prices in the days ahead, though oil traders would do well to watch how broad risk appetite is impacted by the Wednesday Fed policy announcement for any follow-through to oil prices.

OPEC+ headlines are also worth keeping an eye on, with the latest sources suggesting (as expected) that the cartel will stick to its plans to up production by another 400K barrels per day in March. The bigger theme for oil markets right now is whether smaller OPEC+ producers can actually keep up with these output hikes, which has not been the case in recent months. Oil traders should also keep an eye on the latest official weekly US EIA crude oil inventory figures out at 1530GMT. The weekly private API inventory report showed a slightly larger than expected draw of 0.9M barrels.