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Why oil’s rally after Russia’s ‘Pearl Harbor’ moment may be short-lived
Crude prices climb after Ukraine’s attack despite OPEC+ production hike
Russian media and some pro-Moscow bloggers have branded Ukraine’s latest attack on the country as “Russia’s Pearl Harbor.”Photo: MarketWatch photo illustration/iStockphoto
Geopolitical shocks have a knack for roiling the financial markets, but the oil sector was still caught off guard by a surprise attack by Ukraine that has been referred to as “Russia’s Pearl Harbor,” and which led to an unexpected rally in crude prices that some analysts believe is doomed to be short-lived.
The upward move in prices came during the same weekend that OPEC+ announced a decision to speed up its production increase for a third month in a row. Some analysts had expected to see oil move lower in the wake of that decision, but that was before Ukraine’s drone strikes on Russian air-force bases that damaged or destroyed bombers used by Russia for missile attacks and potential nuclear strikes, according to the Wall Street Journal.
Ukraine’s recent drone strikes on Russian air bases have “introduced a renewed element of supply risk into the [oil] market,” said Alex Hodes, director of energy-market strategy for StoneX, in a Monday newsletter. This geopolitical backdrop provided “an offset” to the news that OPEC+ would raise production by 411,000 barrels per day in July, “a move widely anticipated and already priced in by traders.”
Eight countries in the group, comprised of the Organization of the Petroleum Exporting Countries and its allies, made the announcement on Saturday, accelerating the return of a total of 2.2 million barrels in voluntary production cuts that had been implemented in January 2024. They had been gradually returning those barrels of oil to the global market since April.
By July, OPEC+ will have returned to the market 1.37 million barrels per day of the 2.2 million bpd of voluntary cuts, according to strategists at Société Générale, who believe that the expedited output increases convey “aggravation” against persistent overproduction by members of the group who have not fully complied with output quotas.
