Oil Market Surges After Ukraine Air Strikes in Russia, But Will It Last?
Key takeaways
- Ukrainian drone strike inside Russia offsets OPEC+ supply news
- StoneX’s Hodes calls the rally temporary, not a fundamental shift
- The market is already positioned for bearish expectations
After Ukraine launched a surprise attack on Russian air bases, oil prices surged unexpectedly, defying broader market expectations tied to OPEC+’s decision to speed up its production hikes. While the covert drone strike caused crude oil prices to spike, StoneX Director of Market Strategy Energy Alex Hodes told Market Watch’s Commodity Corner that the rally may be short-lived due to underlying market fundamentals.
Hodes commented that Ukraine’s drone strike added “a renewed element of supply risk into the oil market,” creating a short-term shock that curbed bearish pressures. The timing was notable, since it coincided with OPEC+’s announcement to speed up the return of 2.2 million barrels per day (bpd) in voluntary production cuts, with 1.37 million bpd expected back on the market by July. According to Hodes, this production decision was “widely anticipated [and] already priced in by traders,” meaning that geopolitical events, rather than supply changes, were driving the market’s volatility.
Despite the bullish price movement, Hodes warned that traders had already bolstered themselves for a downturn before the rally. He pointed out that Brent short positions were at their highest level since October, preceding the OPEC+ decision, meaning the market had effectively “baked in” the negative impact of an increased supply. Hodes considers the post-attack rally as a reset rather than a deeper market shift. He stated that “rising geopolitical tensions” helped oil prices move “significantly higher,” but this did not necessarily translate to a lasting bullish trend, only a temporary repricing in response to an unforeseen event.
While some other market analysts have speculated on the long-term implications from this development, Hodes suggested the rally is likely short-lived unless there are further supply disruptions. With production ever-increasing and broader demand still uncertain, the upward pressure from geopolitical events may fade quickly. This is an oft-recurring feature of oil markets, where temporary price spikes driven by geopolitical events are frequently proved unsustainable. Hodes explained that the oil market sits in a tenuous position, balancing between “barrels and bombs,” where the “smallest misstep” in global politics may temporarily rattle prices but is not expected to override bearish fundamentals in the long term.
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Writer: Dan Morales
Expert: Alex Hodes, Director of Market Strategy - Energy
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