Attacks on Russian refineries lift risk premium and crude prices

• Crude oil breaks long-held range on supply disruptions and export curbs
• Focus on FOMC outcome and EIA's weekly crude and fuel stock report
• The triangle breakout suggests a 5-8% upside for crude oil

In last week's crude update, we highlighted how the recent lack of a price catalyst had pushed the four-week rolling average trading range in WTI and Brent to a ten-year low. Crude has nevertheless been seeing a steady but calm ascent since December, when Houthi attacks on ships in the Red Sea raised the geopolitical temperature while supporting tighter market conditions with millions of barrels of crude and fuel products being stuck at sea for longer.

However, since then the combination of continued Ukrainian drone strikes on Russian refineries, lifting gasoline and diesel prices, and Iraqi plans to reduce oil exports in the coming months to compensate for recent overproduction relative to OPEC+ limits, helped drive WTI and Brent higher in the process supporting fresh momentum buying from funds looking for an extension of the long-held range. Also supporting prices were the latest Oil Market Report from the International Energy Agency (IEA) in which they raised their global oil demand forecast to 1.3 million barrels per day, while shifting their balance for the year from a surplus to a deficit based on the assumption OPEC+ will maintain current production curbs through 2024.

The biggest driver supporting the latest buying has undoubtedly been an actual supply disruption in Russia after several recent drone attacks on oil refineries added upward pressure to fuel markets, driving up crude demand, with JP Morgan estimating that 900,000 barrels per day of Russian refinery capacity being offline. A development that, depending on the duration, may support a more sticky risk premium, than those that were added following the December attacks in the Red Sea.

Crude prices have softened a bit today ahead of the FOMC meeting that may shape the broader market tone through its impact on rates, bond yields and not least the dollar which trades higher for a fifth day, primarily driven by yen weakness following a historic rate hike from the Bank of Japan that ended up leaving more questions than answers. Ahead of the announcement, the EIA will publish its weekly crude and fuel stock report, with surveys and yesterday's American Petroleum Institute report pointing to a draw in crude and gasoline stocks. I will post the results of the EIA report on X at @ole_s_hansen once published at 13:30 GMT.