Oil ETFs Gain as Pipeline Disruptions Further Exacerbate Tight Global Supplies

Crude oil prices and related exchange traded funds surged on Wednesday as the Caspian Pipeline Consortium pipeline added to another layer of concerns over global supplies.

On Wednesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, were up 4.8% and 5.5%, respectively. Meanwhile, WTI crude oil futures were 4.8% higher to $114.5 per barrel and Brent crude rose 4.9% to $121.1 per barrel.

Energy markets rallied on disruptions to Russian and Kazakh crude exports via the Caspian Pipeline Consortium pipeline, Reuters reports.

Crude oil moving along Kazakhstan’s CPC terminal on Russia’s Black Sea coast halted on Wednesday after major storm damage and ongoing bad weather conditions.

Russian Deputy Prime Minister Alexander Novak warned that oil supplies through the CPC terminal may stop completely for up to two months.

The disruptions mean that another source of global supply is cut off as crude oil carried along the CPC pipeline accounts for 1.2 million barrels per day of Kazakhstan’s main crude grade, or 1.2% of global demand.

The supply hiccup adds another layer to global energy market concerns after Western sanctions on Russia, the world’s second-largest crude oil exporter, in response to Moscow’s military actions in Ukraine.

“Prices are primarily rising on the loss of CPC Blend crude exports out of Novorossiisk …. adding further bullish fuel to the fire as the drop in Russian crude exports finally appears underway,” Matt Smith, lead oil analyst for the Americas at Kpler, told Reuters.

U.S. President Joe Biden is also expected to announce further Russian sanctions when he meets his European counterparts on Thursday in Brussels.

While the U.S. has already banned Russian oil imports, the European Union remains split over an embargo of Russian crude and oil products.

“There’s a growing consensus that the de facto ban on Russian oil purchases has resulted in a supply disruption of 2 to 3 million barrels a day, and until the world can figure out how to replace that oil we’re going to march on higher until demand destruction takes place,” Andrew Lipow, president of Lipow Oil Associates, told Reuters.

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