Oil declined as investors weighed a potential escalation of the war in Ukraine after Poland was struck by a Russian-made missile.
West Texas Intermediate fell toward $86 a barrel after rising 1.2% on Tuesday following the strike. NATO ambassadors will hold an emergency meeting on Wednesday, as President Joe Biden and key European leaders urged caution after the rocket hit a village just over the border from Ukraine.
The strike adds another element of volatility for traders who are juggling signs of a tight market and concerns over an economic slowdown. Poland’s president said it’s likely the nation will invoke the North Atlantic Treaty Organisation’s Article 4, which allows allies to raise talks on national security threats.
Initial findings pointed to the rocket being fired by Ukraine at an incoming Russian projectile, the Associated Press reported, citing unnamed US officials. Biden told reporters in Bali that it’s unlikely the rocket was fired from Russia.
“Bullishness faded quickly,” said James Whistler, managing director of Vanir Global Markets Pte. “Oil prices will continue to struggle for upside until traders see tangible evidence of China relaxing its Covid measures.”
China has relaxed some of its strict Covid Zero restrictions, but the world’s biggest crude importer is grappling with rising infections. Virus cases surged to almost 20,000 on Tuesday, the highest level since late-April.
A barrage of Russian missiles struck locations across Ukraine, hitting civilians and critical infrastructure. The Druzhba pipeline that brings Russian crude to eastern Europe was halted on Tuesday after power supply was knocked out, according to Hungarian energy company Mol Nyrt.
The potential for escalation threatens to tighten the market even further, with European Union already set to sanction Russian flows from December due to its ongoing war. The International Energy Agency said markets are vulnerable after oil inventories in developed nations sunk to the lowest since 2004.
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