Oil jumps 2% after Russia-Ukraine missile exchange outweighs US crude stockpile; US WTI up 2% to $70

International crude oil prices climbed two per cent on Thursday, November 21, after Russia and Ukraine launched missiles at each other, overshadowing the impact of a bigger-than-expected increase in US crude inventories. Ukraine fired British cruise missiles into Russia, the latest Western weapon it has been permitted to use in such a way, a day after it fired US missiles.

Brent crude futures last rose $1.04, or 1.4 per cent, to $73.85. US West Texas Intermediate (WTI) crude futures rallied $1.46, or 2.1 per cent, to $70.22. US WTI has gained 4.8 per cent this week while Brent crude is up 1.8 per cent. Back home, crude oil futures due for December 18 expiry, traded 1.49 per cent higher at ₹5,915 per barrel on the multi-commodity exchange (MCX).

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What's driving crude oil prices?

-Analysts say the crude oil rally has Russia/Ukraine written all over it, adding that surging natural gas prices in Europe and the US also supported the market. Kyiv's air force said Russia responded on Thursday by launching an intercontinental ballistic missile at Ukraine for the first time. 

-Russia has said the use of Western weapons to strike its territory far from the border would be a major escalation in the conflict. Kyiv says that to defend itself, it must be able to strike Russian bases used to support Moscow's invasion, which entered its 1,000th day this week.

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-For oil, the risk is if Ukraine targets Russian energy infrastructure, while the other risk is uncertainty over how Russia responds to the attacks. China announced policy measures to boost trade, including support for energy imports, amid worries over US President-elect Donald Trump's threats to impose tariffs.

-Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) may push back output increases again when it meets on December 1 due to weak global oil demand. The group pumps around half the world's oil. It had initially planned to reverse production cuts from late 2024 through 2025 gradually.

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-Weighing on the market was a 545,000 barrel increase in US crude inventories to 430.3 million barrels. According to Energy Information Administration (EIA) data, gasoline inventories rose more than forecast last week, while distillate stockpiles posted a larger-than-expected draw.

Where are oil prices headed?

Analysts noted US crude stocks unexpectedly increased by 0.5 million barrels in the week ending November 15, marking a third consecutive weekly build. Equinor also announced the restoration of full output capacity at its Johan Sverdrup oilfield, which can produce 755,000 bpd, about a third of Norway’s oil production. 

However, according to Kaynat Chainwala, AVP-Commodity Research, Kotak Securities, the decline in prices was limited by ongoing geopolitical tensions after the US vetoed a UN Security Council resolution calling for a ceasefire in Gaza, and tensions between Russia and Ukraine remained high.

"We expect crude oil prices to remain volatile. Crude oil has support at $68.55–68.10, with resistance at $69.65–70.25. In INR terms, crude oil is supported at ₹5,770–5,700, with resistance at ₹5,890–5,940," said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.