Russian Turmoil Causes Modest Oil Price Increase, Future Volatility Likely

Meanwhile, the U.S.rig count drops substantially: File Image/Pixabay

The notion of political instability in Russia vied for attention on Monday with ongoing concerns about global demand growth, the outcome being a minuscule rise in prices for two key benchmarks.

After mutineering fighters of the Wagner Group agreed to a deal to halt their rapid advance on Moscow and return to their bases (a move that raised questions over the weekend about political unity in the former Soviet Union), Brent settled up 33 cents, or 0.5 percent, at $74.18 per barrel.

West Texas Intermediate rose 21 cents, or 0.3 percent, to settle at $69.37 per barrel.

U.S. secretary of state Antony Blinken said of the turmoil in Russia, "I don't think we've seen the final act," and he suggested it could take months to play out.

For the energy market, the ramifications could be substantial: Phil Flynn, senior market analyst at Price Futures Group Inc., said the political instability could exacerbate supply shortages as Saudi Arabia makes good on its pledge to cut output from July, and it could put an end to U.S. strategic reserve releases.

He remarked, "The reality is [the Russian turmoil] is another risk against complacency in a market that has been counting on a future drop in demand to meet what will be a big drop in supply,"

Ironically, Flynn's observations came on the heels of a Baker Hughes report showing that the number of oil and natural gas rigs operated by U.S. energy companies fell for an eighth straight week for the first time since July 2020; the rig count dropped by 5 to 682 in the week to June 23, the lowest since April 2022, which puts the total rig count down 71 rigs, or 9 percent, over this time last year.

Russia also dominated other oil related news on Monday: according to a person familiar with the matter, Russian refineries raised their crude-processing volumes to highest levels in 10 weeks by processing over 5.6 million barrels of crude per day in the week ending June 21.

That's nearly 115,000 barrels per day more than the week prior and the highest weekly processing rate since April 6-12.

Russia is also reportedly considering cutting subsidies to its refiners, by as much as half and as soon as September, as it seeks to limit spending amid its war with Ukraine.