Oil prices jump after Ukraine strikes Russian oil refineries

Crude oil futures jumped Wednesday after Ukraine struck refineries in Russia, underlining risks to production and fuel supplies from the war in Eastern Europe.

The West Texas Intermediate contract for April gained $2.16, or 2.78%, to settle at $79.72 a barrel. The Brent contract for May added $2.11, or 2.58%, to settle at $84.03 a barrel.

Ukrainian drones hit a Rosneft refinery in the Ryazan region about 130 miles from Moscow and the Novoshakhtinsk refinery in the Rostov region, according to Reuters. The strikes came one day after Ukraine hit a Lukoil refinery in Nizhny Novgorod, about 265 miles from Moscow.

Ukraine has repeatedly struck Russian oil infrastructure since January in a campaign to hurt the country’s economy. The latest attacks come ahead of Russia’s presidential election this weekend.

The targets this week are major refineries, particularly the Rosneft facility in Ryazan, which has a refining capacity of 340,000 barrels per day, according to Andy Lipow, president of Lipow Oil Associates.

The campaign of Ukrainian attacks this year has hit refineries representing 25% of Russia’s total refining capacity of 6.8 million barrels per day, according to Lipow. About 50% of Russia’s refining capacity is within range of a Ukrainian drone attack, he said.

The attacks will curtail Russian diesel exports and turn the country into a gasoline importer, he said.

“We’re seeing oil prices rise, really being led by products on the back of these attacks which have been going on with some regularity since January,” Lipow said. “The market is pricing in higher and higher probabilities of supply disruptions especially when you damage refineries.”

Fernando Ferreira, an analyst with the Rapidan Energy Group, expects the drone attacks to continue this week. The damaged refining units could take weeks to repair and they might not return to full capacity when they come out of maintenance, Ferreira said.

“We’re going to see a worsening of the situation for Moscow. This is very much aligned with Ukraine’s goals in the war. We’ve seen a staggering number of drones over the past couple days,” Ferreira said.

U.S. commercial crude inventories, meanwhile, fell by 1.5 million barrels last week, according to data from the Energy Information Administration. Gasoline stocks declined by 5.7 million barrels, according to the EIA.

The Ukrainian attacks and the U.S. crude inventory drawdown have jolted oil prices out of a recent slump that had been caused by worries about demand in China as well as forecasts of robust supply in the Americas, particularly the U.S.