Russian Supply Disruptions, US Interest Rate Focus Buoy Crude Prices

By Adedapo Adesanya

Crude prices were up on Tuesday as traders weighed the possibility that Russian supplies may be disrupted by Ukrainian drone attacks on its ports and refineries, while the markets awaited the Federal Reserve’s decision on US interest rates, with Brent crude futures growing by $1.03 or 1.5 per cent to $68.47 a barrel and the US West Texas Intermediate (WTI) crude futures rising by $1.22 or 1.9 per cent to $64.52 a barrel.

Transneft, the Russian oil pipeline giant, has warned producers they may have to cut output following Ukraine’s drone attacks on critical export ports and refineries. This may lead to supply disruptions and provide support for prices.

It also carried out a drone strike on one of Russia’s largest oil refineries, the Kirishi plant in the Leningrad region, with a capacity of 360,000 barrels per day, prompting the owners to cut runs in the country’s leading producer of diesel and fuel oil.

Ukraine has intensified attacks on Russia’s energy infrastructure in recent weeks, disrupting operations at Russia’s key western oil terminal Primorsk last week as talks to end their conflict have stalled.

JP Morgan analysts noted that an attack on an export terminal like Primorsk is aimed more at limiting Russia’s ability to sell its oil abroad, affecting export markets. China and India are top destination of Russian crude, while others are limited by sanctions.

Goldman Sachs estimates that the Ukrainian attacks have taken out about 300,000 barrels per day of Russian refining capacity in August and so far this month.

Russian refineries have suffer substantial damage due to the Ukraine attacks and this could increase demand for US diesel exports and potentially sustain the present supply more than future supply.

Support also comes as the markets look  forward to the US Federal Reserve’s September 16-17 meeting. The US central bank is expected to cut interest rates, which should stimulate the economy and boost fuel demand.

The American Petroleum Institute (API) estimated that crude oil inventories in the US fell by 3.420 million barrels in the week ending September 12. So far this year, crude oil inventories are up nearly 5.3 million barrels.

Official data from the US Energy Information Administration (EIA) is due later on Wednesday.