Oil prices remained steady on Tuesday following a rally on the previous day, which was fueled by a halt in production at Norway’s Johan Sverdrup oilfield. Investors continued to exercise caution amid concerns regarding an escalation in the Russia-Ukraine war. Brent crude futures for January delivery decreased by 2 cents to $73.28 a barrel by 0730 GMT, while U.S. West Texas Intermediate (WTI) crude futures for December delivery were priced at $69.13 a barrel, down 3 cents.
The more actively traded WTI January contract dropped by 6 cents to $69.11. Both benchmarks had risen by more than $2 a barrel on Monday after Equinor, Norway’s oil company, announced that it had suspended output from the Johan Sverdrup oilfield, the largest in Western Europe, due to a power outage onshore. An Equinor spokesperson indicated that efforts to restart production were underway, although it was unclear when operations would resume.
Furthermore, Kazakhstan’s largest oil field, Tengiz, operated by U.S. company Chevron, has cut oil output by 28% to 30% due to ongoing repairs, which has contributed to tightening global supplies. The country’s energy ministry stated that repairs were expected to be completed by Saturday. ING analysts noted, “The halt in production at the 755,000 barrels per day Johan Sverdrup field in Norway due to the power outage and the reduction in output at the Tengiz field in Kazakhstan provided additional support for prices.”
They added, “Geopolitical risks between Russia and Ukraine have increased following the U.S. announcement that it would allow Ukraine to conduct long-range missile strikes on Russia.” On Sunday, Russia executed its largest airstrike on Ukraine in nearly three months, resulting in substantial damage to Ukraine’s power infrastructure. In a notable shift in Washington’s policy, President Joe Biden’s administration permitted Ukraine to employ U.S.-made weapons for strikes deep within Russian territory, according to two U.S. officials and a source familiar with the matter.
The Kremlin responded on Monday, stating that Russia would react to what it termed a reckless decision by the Biden administration, which had previously cautioned that such a move would heighten the risk of confrontation with the U.S.-led NATO alliance. Investors are cautious, according to Toshitaka Tazawa, an analyst at Fujitomi Securities, who said they are “assessing the direction of the Russia-Ukraine war after the weekend’s escalation.”
Meanwhile, traders began shifting their WTI trades to the January contract in anticipation of the December contract’s expiration on Wednesday. For the first time since February, WTI flipped to contango on Monday, with January delivery trading at a premium to the December contract, indicating that supply tightness may be easing.
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