Oil prices lifted slightly on Monday as escalating Russia-Ukraine tensions bolstered geopolitical risk premiums.
However, gains were tempered by concerns over weakening demand in China and forecasts of a global oil surplus.
By 1:55 pm AEDT (2:55 pm GMT) Brent crude futures rose $0.17, or 0.2%, to US$71.21 a barrel, while U.S. West Texas Intermediate (WTI) crude futures increased by $0.08, or 0.1%, to $67.06 per barrel.
The oil market reacted to a shift in U.S. policy regarding the Ukraine conflict. President Joe Biden's administration authorised Ukraine to use U.S. weapons to strike targets deep inside Russia, signalling a significant escalation.
Over the weekend, Russia launched its largest air strike on Ukraine in nearly three months, severely damaging Ukraine’s power infrastructure.
Meanwhile, reports indicate that at least three Russian refineries have reduced operations due to financial strain from export restrictions and high crude prices.
Despite Monday’s price gains, oil markets remain under pressure from demand concerns. Last week, Brent and WTI prices fell more than 3% amid disappointing economic data from China and forecasts from the International Energy Agency (IEA) projecting a significant global oil surplus by 2025.
Additionally, investor uncertainty over the U.S. Federal Reserve’s interest rate policies continues to weigh on financial markets. The pace of rate cuts has added volatility to oil prices, complicating supply-demand expectations.