Oil prices rebounded on Friday as fears of Western sanctions that could disrupt Russian oil exports outweighed the possibility of increased supplies from Iran, and reports of a fire at a nuclear power plant in Ukraine spooked financial markets.
Global inventories have fallen and oil prices have risen amid signs of an escalation in the Russian-Ukrainian conflict after reports of a fire at a Ukrainian nuclear power plant following an attack by Russian troops.
Fears of a potential nuclear disaster at the Zaporizhzhya Nuclear Power Plant, Europe’s largest, raised alarm in world capitals before authorities said the fire at a building identified as a training center had been extinguished.
May futures for Brent crude rose to $114.23 a barrel and rose 73 cents, or 0.7%, to $111.19 by 07:55 GMT.
April’s West Texas Intermediate rose $1.21, or 1.1%, to $108.88 after hitting a high of $112.84 earlier in the session.
Crude oil prices will post their strongest weekly gain since mid-2020, with WTI up 19% and Brent up 13% after hitting a decade-high this week.
Oil prices are rising on fears that Western sanctions against Russia over the conflict in Ukraine will cut off supplies from Russia, the world’s largest exporter of oil and petroleum products combined. Trading activity for Russian oil has slowed as buyers are hesitant to buy due to sanctions and US President Joe Biden is under increasing pressure to ban Russian oil imports to the US.
“The escalation of Russia’s war in Ukraine has not only created geopolitical risks, but exacerbated already heightened fears about inflation, as well as led to an increase in the risk premium,” said RBC Capital analyst Christopher Looney.
Additional oil supplies could be added through the coordinated release of 60 million barrels of oil reserves by developed countries. Japan said on Friday it plans to produce 7.5 million barrels of oil, though that’s only a fraction of its demand.
On Thursday, prices hovered in the $10 range but eased for the first time in four sessions as investors focused on resurrecting the Iran nuclear deal, which is expected to boost Iranian oil exports and ease a global supply shortfall.
“Price increases associated with actual and perceived disruptions in Russian oil exports should more than offset any price drop due to a potential increase in Iranian crude supplies,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia (OTC:CMWAY).
Dhar expects Brent to average $110 a barrel in the second and third quarters of this year, but said “the risk is that prices will exceed our forecast in the short term,” adding that it was likely that futures for Brent can reach $150.