The oil market on Monday largely ignored Russia's political woes as concerns about the production of global supply were dampened.
Prices for West Texas Intermediate (WTI) rose only slightly by 0.75% to trade at $69.68 a barrel while Brent crude traded at $74.59, up by 0.78%.
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Russia faces further political instability after a threat was made to President Vladimir Putin's leadership that could disrupt oil supplies in the future.
A short-lived insurrection led by paramilitary troops under the command of Yevgeny Prigozhin, a long-time Putin ally, ended June 24 with the Wagner Group's leader brokering a move to neighboring Belarus via President Alexander Lukashenko. The armed mercenaries left Rostov, a southern city in Russia, after advancing toward Moscow.
Russia agreed not to prosecute any of the mercenary fighters involved in the weekend convoy.
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Russia Oil Production Not Impacted
Production of oil in Russia has not been impacted currently, but some hubs in the region are major exporters.
"While there is no disruption to oil flows at present, we note that the Baltic Sea and the Black Sea are Russia’s major export hubs for seaborne oil, and that the Wagner group also has some presence around oil facilities in Libya," wrote Daan Struyven, a senior energy economist for Goldman Sachs, in a research report.
Novorossiysk and Tuapse, which are two main Black Sea export ports, are located 200 to 250 miles south of Rostov. Their pipelines are closer to Rostov.
The impact to oil prices has been minimal because the market is focused on "spot fundamentals, which have not changed, and because any hits to financial risk sentiment or to oil demand from increased uncertainty may provide an offset," he said.
Oil Production Dropped After Ukraine Invasion
Russia's production dropped last April to May as Western buyers curtailed their purchases and sought oil elsewhere after the country invaded Ukraine.
"The combination of falling exports, and limited domestic storage capacity quickly resulted in abrupt shut-ins at the production well-heads," Struyven said.
By June, production reversed since alternative vessels that "were not reliant on Western financial and logistical services" were found, he said.
The G7’s price caps on oil allowed Russian oil flows as long as the cargo's prices remained below the caps.
The 2022 disruption in Russian oil was "was ultimately political in nature, and Western governments had the ability to take actions to reduce disruptions, which they did," Struyven said.
Revenue generated from crude oil is much larger than natural gas in Russia.
"We focus on oil markets because any domestic upheaval is more likely to lead to disruptions to supply of oil than to supply of natural gas or other commodities," he said.
"As fiscal revenues from oil are about four times larger than fiscal revenues from gas, any group challenging the incumbent Russian leadership could impact revenues significantly more by targeting oil," Struyven said.
An increased risk of a decline in supply could put upward pressure on oil prices.
"Markets may price a moderately higher probability that domestic volatility in Russia leads to near-term supply disruptions or has a sizable negative impact on oil supply at some point in the future (which could put some upward pressure on long-dated oil prices," he said.
