Oil prices remained elevated in early Asian trade on Tuesday as investors priced in growing geopolitical risk, especially after a drone strike damaged infrastructure at the Caspian Pipeline Consortium (CPC) Black Sea terminal.
At the time of writing, Brent crude was trading at $63.16 a barrel and U.S. West Texas Intermediate was changing hands at $59.36, both up by more than a dollar over the last week.
The latest drone strike, which reportedly damaged a key mooring point at the CPC terminal, triggered supply disruption fears, although some loadings have resumed via alternate berths after the attack. It is just the latest in a string of attacks carried out by both Russia and Ukraine, with the continued attacks undermining the peace talks that are currently underway.
At the same time, political tension between the U.S. and Venezuela has added to market uncertainty, with concerns that further restrictions or sanctions might curb Venezuelan oil exports. The U.S. military buildup off Venezuela has boosted concerns of a conflict between the two countries, which could lead to a major supply disruption.
Confirmation from OPEC+ on Sunday that the group would maintain its output in the first quarter of 2026 also provided oil prices with some upward momentum, countering a long decline based on fundamentals.
That said, underlying structural factors will limit the upside for oil prices, even if the Ukraine-Russia peace process falls apart. Demand concerns and ample supply continue to weigh on oil prices, and most analysts see a supply glut looming in 2026.
Going forward, traders will be watching both Venezuela and Ukraine for further flash points that might move prices significantly. Next week’s Federal Reserve meeting will also be on their minds, with markets currently pricing in a 25bps rate cut. As always, both the API and EIA inventory reports will add to the broader demand picture.
By Charles Kennedy for Oilprice.com
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