Oil prices fall and markets avoid "frenzy" as Poland missile fears ebb

(Alliance News) - Oil prices took a hit on Wednesday afternoon, having spiked in the morning after a missile hit Poland late on Tuesday.

Fears of an escalation in the Russia-Ukraine conflict, with a Nato member falling into the cross-hairs, saw the Brent price spike to USD95.17 a barrel overnight. It ebbed to as low as USD91.80 a barrel on Wednesday, however, and traded at USD92.25 on Wednesday afternoon.

"Oil prices are softer on Wednesday after a brief bout of volatility late Tuesday following reports of missile strikes in Poland. That unsurprisingly jolted financial markets, sending oil prices higher initially, but that quickly settled and crude prices are now back where they were before," Oanda analyst Craig Erlam commented.

Ukraine's President Volodymyr Zelensky accused Russia of firing at the Nato member, though it was initially unclear where the missile came from.

US officials said initial findings suggest the missile that hit Poland was fired by Ukrainian forces at an incoming Russian missile.

Oil markets for now have avoided a "frenzy", which would have occurred if Russia was found to have attacked a Nato member, Erlam added.

The Oanda analyst explained: "It goes without saying that any significant escalation in the war in Ukraine will likely add a substantial risk premium to oil prices, with Russia being a major producer and exporter, as well as one of the leaders in the OPEC+ alliance. A strike on a Nato member is an extreme example of that and could send oil markets into a frenzy. Thankfully, worst fears haven't been realised but investigations are still taking place which will keep oil traders on edge."

The news from Poland served to highlight how precarious the geopolitical situation is, an analyst said.

Stephen Innes, of SPI Asset Management, said: "While the specific fears and the uptick in geopolitical risk have fallen, they should warn European investors how fragile the security situation remains in Europe."

Oil prices were also supported after a drone attack on a tanker carrying gas oil off the coast of Oman. But on the flip-side, rising virus cases in China have led to oil demand concerns, which alongside a soothing of geopolitical fears, are keeping a lid on prices.

China reported over 20,000 new Covid-19 infections Wednesday – the highest figure since April – with major outbreaks in the cities of Guangzhou and Chongqing.

By Eric Cunha; [email protected]

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