Oil Prices Retreat Amid Production Halts and Geopolitical Tensions

By Yuka Obayashi

TOKYO (Reuters) – Oil prices retreated on Tuesday after the previous day's rally driven by halted production at Norway's Johan Sverdrup oilfield. Investors remained cautious amid fears of potential escalation in the Russia-Ukraine war.

Brent crude futures for January delivery slipped 7 cents, or 0.1%, to $73.37 a barrel by 0119 GMT, while U.S. West Texas Intermediate (WTI) crude futures for December delivery were at $69.23 a barrel, down 7 cents, or 0.1%. The more active WTI January contract fell 4 cents, or 0.1%, to $69.21.

Both benchmarks climbed more than $2 a barrel on Monday.

"Some position adjustments kicked in after Monday's rally," said Toshitaka Tazawa, an analyst at Fujitomi Securities. "But investors stayed wary, assessing the direction of the Russia-Ukraine war after the weekend's escalation," he added.

Russia unleashed its largest airstrike on Ukraine in almost three months on Sunday, causing severe damage to the country's power system. In a significant policy reversal, President Joe Biden's administration allowed Ukraine to use U.S.-made weapons to strike deep into Russia.

The Kremlin responded, stating that they would retaliate against what they termed a reckless decision by the Biden administration, warning it could escalate tensions with the U.S.-led NATO alliance.

Meanwhile, supply concerns persisted due to production issues at various oilfields. Norway's Equinor halted output from its Johan Sverdrup oilfield, Western Europe's largest, due to an onshore power outage. Work to restart production was underway, though it was unclear when it would resume.

Kazakhstan's biggest oil field, Tengiz, operated by U.S. major Chevron, has reduced oil output by 28% to 30% due to ongoing repairs, tightening global supplies further. Repairs were expected to conclude by Saturday, according to the country's energy ministry.

Traders began shifting WTI trades to the January contract ahead of the December contract's expiration on Wednesday. WTI flipped to contango for the first time since February on Monday, with January delivery trading at a premium to the December contract, indicating easing supply tightness.