Oil Edges Lower as Missile Strike on Poland Sparks Volatility

(Bloomberg) -- Oil slipped as investors weighed a potential escalation of the war in Ukraine after Poland was struck by a Russian-made missile.

West Texas Intermediate futures dropped toward $86 a barrel after closing 1.2% higher on Tuesday following news of the strike. NATO ambassadors will hold an emergency meeting on Wednesday, although US President Joe Biden said the rocket that hit a village was unlikely to have been fired from Russia.

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 Organization’s Article 4, which allows allies to raise talks on national security threats.

“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.

Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.