NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied to two-week highs across the board on Tuesday morning amid increased geopolitical tensions after Turkey shot down a Russian fighter jet flying over its border with Syria, prompting recrimination and tension between the two countries.
Russian President Vladimir Putin said the incident was a "stab in the back" that he won't tolerate and warned of serious consequences in Turkish-Russian relations. Turkey, for its part, has called an emergency meeting of NATO, the post-war defense alliance of Western nations, after claiming the jet invaded its airspace.
The rally for the oil futures complex was also linked to a weakening dollar, technical support, increased pre-holiday demand for gasoline and rising demand for heating due to cold weather conditions.
At last look, the NYMEX January WTI contract was up $1.30 at $43.05 barrel, near a two-week high of $43.18, while the ICE January Brent contract advanced by $1.42 to $46.25 bbl, near a two-month high of $46.30.
In products trade, NYMEX December ULSD futures were added 2.91 cents to $1.4034 gallon, near a two-week high of $1.4060, while the December RBOB futures contract jumped 6.14 cents to $1.3748 gallon, off a two-week high of $1.3839.
On Wall Street, equities were lower, with the dollar also angling down but the greenback could rebound after the Bureau of Economic Analysis revised up its estimate of the U.S. growth rate for the third quarter, saying that real gross domestic product increased at an estimated annual rate of 2.1% in the three months-ended September 30, revised up from a 1.5% increase seen in the initial reading.
Also, home prices also jumped in September by the most in more than a year, suggesting the housing market is robust. The Federal Reserve is expected to raise interest rates next month because the U.S. economy is resilient.
For oil prices, the focus is on geopolitical risks and fundamentals. The fact that Putin ratcheted up his rhetoric alarmed market participants at least briefly, but the upside for oil prices was capped by the fact that oil supply from the Middle East won't be disrupted much.
Turkey gets some of its oil from Iraq's Kurdistan region and neighboring Syria is marginal to the oil market. Putin alleged Turkey was buying oil from Islamic State terrorists and casted Turkey as a source of funding for the terrorist group, but the claim has not been verified.
The escalating tensions prompted immediate short covering especially for crude oil while the RBOB contract, which has been the strongest segment of the oil complex, was boosted by improved demand for gasoline ahead of Thursday's Thanksgiving holiday, and cold weather conditions boosted demand for heating oil.
The oil complex has been choppy in recent weeks and today's gains might be transitory. Some of WTI's gains were driven by bargain-hunting after Saudi Arabia signaled it was willing to work with other major oil producers to stabilize the market.
Still, the gains were capped by concerns over a global glut and the fact that the dollar has not significantly weakened. Many analysts still doubt the Saudis are serious about cutting oil output and the Organization of Petroleum Exporting Countries continues to produce above its agreed 30 million barrels per day quota.
Domestically, the market expects crude oil stocks to post a ninth straight increase in this week's supply data. An early survey by Schneider Electric showed crude oil stockpiles expected to have increased by an average of 1.3 million in the week-ended Nov. 20, and also anticipates crude stockpiles at the Cushing hub in Oklahoma to climb by 1.5 million bpd.
George Orwel can be reached at email@example.com
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.