Oil prices climbed on Thursday as geopolitical concerns over escalating tensions between Russia and Ukraine outweighed the impact of a bigger-than-expected increase in U.S. crude inventories.

Brent crude futures rose 60 cents, or 0.82%, to $72.81 as of 0734 GMT. U.S. West Texas Intermediate crude futures rose 64 cents, or 0.93%, to $69.39.

Ukraine fired a volley of British Storm Shadow cruise missiles into Russia on Wednesday, the latest Western weapon it has been permitted to use on Russian targets, a day after it fired U.S. ATACMS missiles.

Moscow has said the use of Western weapons to strike Russian territory far from the border would be a major escalation in the conflict. Kyiv says that in order to defend itself it must be able to strike Russian rear bases used to support Moscow's invasion, which entered its 1,000th day this week.

"For oil, the risk is if Ukraine targets Russian energy infrastructure, while the other risk is uncertainty over how Russia responds to these attacks," said ING analysts in a note.

JPMorgan analysts added that oil consumption recovered in the past week because of better travel demand in the U.S. and India, while the latter also showed a significant rise in industrial demand.

Global oil demand is estimated to have reached 103.6 million barrels per day (bpd) during the first 19 days of November, up 1.7 million bpd on-year, the analysts said in a note.

Both Brent and WTI have risen more than 3% so far this week.

However, geopolitical turmoil, whether from Russia's invasion of Ukraine or the Israel-Hamas conflict, has provided only a short-term boost to prices and has not sustained momentum, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Weighing on the market was a rise in U.S. crude inventories by 545,000 barrels to 430.3 million barrels in the week ended Nov. 15, exceeding analysts' expectations in a Reuters poll for a 138,000-barrel rise.

Gasoline inventories last week rose more than forecast, while distillate stockpiles posted a larger-than-expected draw, according to the Energy Information Administration data.

Adding to supply, Norway's Equinor said it had restored full output capacity at the Johan Sverdrup oilfield in the North Sea following a power outage.

The Organization of the Petroleum Exporting Countries and its allies led by Russia, the group known as OPEC+, may push back output increases again when it meets on Dec. 1 due to weak global oil demand, according to three OPEC+ sources familiar with the discussions.

OPEC+, which pumps around half the world's oil, had initially planned to gradually reverse production cuts with minor increases spread over several months in 2024 and 2025.

However, the International Energy Agency (IEA) said in its report last week that even if OPEC+ cuts remain in place, oil supply will exceed demand in 2025 as rising production from the United States and other outside producers outpaces sluggish demand.

Nvidia announced another very strong quarter after the bell. The company surpassed its own revenue forecast by around $2bn (again!) and printed a sales number of $35.1bn. That’s around $5bn more than last quarter’s number and almost the double of the amount earned during the same period a year ago. The company printed a total profit of an eye-watering $19.3bn – that’s also around $2bn more than pencilled in by analysts. And it made a revenue forecast of $37.5bn for the current quarter. That’s $2bn more than the actual revenue – as it has been the case for the past few quarters – but only slightly above the consensus of $37bn.

To me, being lower than the most optimistic of the Wall Street forecasts is not a concern, bit there are two flags that are emerging right now.

The company’s gross margin slightly fell last quarter from 75% to 74.6%. This number is still around 20 percentage points above AMD’s profit margin and more than double Intel’s BUT the switch to the now-famous Blackwell chip – and the manufacturing challenges, there – has been costlier than thought and took a toll on the profit margin. And Nvidia expects its gross margin to dip to 73% before rebounding back to mid-70s as it reaches large-scale production.Happily, demand for Blackwell chips is expected to exceed supply for a few more quarters but the composition of Nvidia’s customer book worries. Big Tech companies make up to 50% of revenues – up from 45% a quarter earlier. And these companies will be done buying chips at large-scale at some point. And come that day, Nvidia must find new clients. The problem is that companies other than Big Tech certainly don’t have the same means to make Nvidia’s bread and butter when competition proposes more affordable AI chips. Hence, competition and market share will become a challenge.

Nvidia fell 2.5% in the afterhours trading. Failure to break a record post-earnings, and the rising worries regarding margins and competition could lead to a certain profit taking over the next few sessions. The 100-DMA – near $125 per share – should provide the first important support to a potential pullback. We expect dip buying opportunities to emerge into $117pb – the minor 23.6% Fibonacci retracement on the AI rally.

But one thing is clear, yesterday’s announcement sounded like the next few quarters won’t be as fun as the last few ones.

As such, the S&P 500 and Nasdaq futures are in the red this morning, and we could see a deeper retracement from the ATH levels with the lack of support from Nvidia earnings.

Elsewhere, the US 20-year note sales saw a tepid demand, and Federal Reserve’s (Fed) Michelle Bowman called for caution on further rate cuts citing at slower progress in reducing inflation. The US 2-year yield rebounded yesterday, as the 10-year yield steadied near 4.40% level. Activity on Fed funds futures points at a near 50-50 chance for the December rate cut right now, and that hawkish shift in Fed expectations continues to give support to the US Dollar new a year-high levels.

This being said, the major counterparts also see some hawkish shift to their own expectations, and the latter slows the US dollar purchases. The UK, for example, printed a higher-than-expected set of inflation figures yesterday morning. Headline inflation in the UK jumped to 2.3% and core inflation to 3.3%. The jump in numbers was expected for October amid a 10% rise in the British energy price cap, but the higher-than-expected figures tamed the dovish Bank of England (BoE) expectations. And because things are expected to get worse before they get better with Donald Trump’s tariff plans and the expansionary fiscal policy from the British government, the first rate cut from the BoE is fully priced in for March, and a second for August. That hawkishness gave an energy shot to the GBP bulls yesterday, although most of the gains were given back rapidly on Fed hawkishness. Moving forward, a smaller divergence between the Fed and the BoE outlook should help throw a floor under Cable near the current levels and encourage recovery in the coming weeks.

Across the Channel, news weren’t encouraging for the European Central Bank (ECB) doves, either. Wages in the Eurozone jumped by 5.4% from a year ago, the most since the single currency exists. Germany is to blame. Wages, there, jumped by 8.8% in Q3 from a year earlier. The jump in wages growth will complicate the ECB’s plans to cut rates at the desired speed. Consequently, the retreat in dovish ECB expectations could slow down the euro selloff, and levels near $1.05 could serve as a dip to shoulder a rebound toward the 1.07-1.08 range.

The European Central Bank (ECB) has raised the alarm over a potential resurgence of eurozone sovereign debt vulnerabilities, as elevated debt levels, sluggish growth, and fiscal slippage converge into a dangerous cocktail.

In its latest November 2024's Financial Stability Review, the ECB warns that these factors, coupled with geopolitical tensions and policy uncertainty, could reignite fears of a sovereign debt crisis akin to the turmoil a decade ago.

“Elevated debt levels and high budget deficits, coupled with weak long-term growth potential, increase the risk that fiscal slippage will reignite market concerns over sovereign debt sustainability,” the monetary institution stated.

The ECB warns that the era of cheap borrowing is firmly over.

Maturing debt is now being rolled over at significantly higher interest rates, pushing up sovereign debt service costs.

This dynamic poses particular risks for high-debt countries where limited fiscal space could leave governments vulnerable to sudden market shocks.

Geopolitical tensions exacerbate the problem. Energy subsidies and other fiscal measures aimed at mitigating global disruptions are further stretching budgets.

“Sovereign vulnerabilities are deepening. Despite recent reductions in debt-to-GDP ratios, fiscal challenges persist in several euro area countries, exacerbated by structural issues such as weak potential growth and heightened policy uncertainty.” ECB vice-president Louis de Guindos remarked.

Debt levels across the eurozone remain a glaring concern, with significant imbalances between member states highlighting the bloc’s underlying fragility.

While the eurozone’s average debt-to-GDP ratio stands at 88.1%, as per the latest Eurostat data, this figure conceals stark contrasts.

Greece leads with a towering debt ratio of 163.6%, followed by Italy at 137% and France at 112.2%. Meanwhile, fiscally disciplined countries like Germany and the Netherlands boast much lower ratios, at 61.9% and 43.2%, respectively.

Looking ahead, the outlook for debt sustainability is increasingly worrying in some of the eurozone’s largest economies. While the broader region’s government debt levels are projected to remain relatively stable, certain member states face a dangerous upward trajectory.

The International Monetary Fund (IMF) in its latest October Fiscal Monitor forecasts that by 2029, France’s debt-to-GDP ratio will climb from 112% to 124.1%, while Italy’s will surge to a staggering 142.3%, up from 136.9%. Belgium, too, is expected to see its debt rise sharply, from 105% to 119%.

These figures underscore growing vulnerabilities that could leave heavily indebted nations struggling to manage fiscal pressures in an environment of higher interest rates and subdued economic growth.

The markets, so far, have remained relatively calm, with volatility spikes proving short-lived. However, underlying vulnerabilities suggest that calm may not last. Fiscal slippage in high-debt countries could reignite market concerns, leading to widening bond spreads reminiscent of the eurozone debt crisis a decade ago.

The ECB acknowledges that "heightened policy and geopolitical uncertainty, weak fiscal fundamentals, and sluggish trend growth raise concerns about the sustainability of sovereign debt in some euro area countries."

"While financial markets have proved resilient so far, there is no room for complacency. Underlying vulnerabilities make equity and corporate credit markets prone to further volatility," Frankfurt warns.

The corporate sector is not immune to sovereign vulnerabilities. Rising sovereign bond yields could spill over into the private sector, driving up funding costs for companies.

This would be particularly damaging for small and medium-sized enterprises (SMEs), which are already under pressure from high borrowing costs and weak growth.

"High borrowing costs and weak growth prospects continue to weigh on corporate balance sheets, with euro area firms reporting a decline in profits due to high interest payments," the ECB stated.

Unlike during the previous debt crisis, eurozone banks are better capitalised and more profitable, providing a buffer against potential sovereign and corporate credit shocks.

However, the interconnectedness of sovereign and bank risks—known as the “doom loop”—remains a concern. A deterioration in sovereign creditworthiness could erode bank balance sheets, potentially triggering a broader financial instability.

The ECB advises regulators to keep banks’ capital buffers strong and uphold rules ensuring borrowers can repay loans, aiming to maintain financial stability and prevent risky lending.

The ECB’s warning is clear: the eurozone is not out of the woods. Elevated debt, weak growth, and fiscal slippage are laying the groundwork for potential market turbulence.

For now, the message from Frankfurt is unequivocal: vigilance is paramount, and complacency is not an option.

Without decisive action to address these vulnerabilities, the region risks sliding into a new sovereign debt crisis.