Oil rallied after Russian President Vladimir Putin ordered a partial mobilization to hold onto occupied territories in Ukraine, an escalation that may lead to further disruption to energy supplies.
West Texas Intermediate added as much as 3.3 percent before trading near $85. Russia will take necessary steps to safeguard its sovereignty and will defend territory with all available means, Putin said as he announced a call-up of reservists.
The move threatened to escalate the Ukraine conflict further, with the Kremlin moving to stage sham votes on annexing regions that it holds.
The growing tensions come before a decision by the US Federal Reserve on monetary policy later on Wednesday.
The central bank is expected to raise interest rates by 75 basis points, and put numbers on the “pain it’s been warning of when it publishes new economic projections.
Meanwhile China issued a giant new quota to export refined fuels, according to a local industry consultant, a move that could weigh on oil product markets.
Putin’s speech “should have more of an effect on oil sentiment as it nudges attention back to the pending implementation of sanctions, Russia’s responses to any price cap and puts the spotlight back on the distillate markets,” said Paul Horsnell, head of commodities research at Standard Chartered. “It creates a few ripples and shores up the downside a bit, but does not in itself create a fast track back to $130.”
Crude is on track for its first quarterly loss in more than two years as concerns over a global economic slowdown weigh on the outlook for energy demand. The Fed decision will be followed by other central banks from Europe to Asia, which are also expected to increase borrowing costs.
Putin’s comments sparked a bid for US treasuries and haven assets including gold.
He also hinted at the use of nuclear weapons in the conflict, while his order will see a call-up for as many as 300,000 reservists.
Elsewhere, the industry-funded American Petroleum Institute reported US crude stockpiles rose more than 1 million barrels last week, according to people familiar with the figures.
Inventories at the key storage hub at Cushing, Oklahoma, and nationwide gasoline supplies both expanded.