WTI Supported Amid Potential Supply Disruptions

Although oil prices retreated from earlier highs as markets await the outcome of Ukraine-Russia talks and traders hope that a ceasefire could materialize, front-month WTI futures remain well underpinned in the $95.00 territories.

At current levels in the $96.00s, WTI is trading with on-the-day gains of over 4.0% or more than $3.50, amid fears that new sanctions announced by Western nations on Russia over the weekend could result in disruption of global energy flows.

Under new sanctions, several Russian banks will be kicked out of SWIFT, the CBR’s access to international currency reserves has been curtailed and Russian planes are banned from EU airspace.

Moreover, the European Union member states would be sending lethal military aid to support Ukraine. Germany and Western companies are beginning to divest from the country on mass.

While Western sanctions do not directly target Russian energy exports, there is a fear that Russia might retaliate to Western sanctions by reducing or completely halting energy exports to Europe.

Traders are becoming more bullish on crude oil moving forward. Goldman Sachs has upped their one-month forecast for Brent crude (current around $x per barrel) to $115.

Analysts have said that, as OPEC+ and other producers struggle to up supply, the only major downside catalyst for oil at this juncture is the prospect of demand destruction as a result of high energy price-induced economic weakness.

On Monday, OPEC+ revised their forecast for an oil market surplus in 2022 to 1.1M barrels per day from 1.3M BPD previously, indicative of expectations for an ever-tighter market.

OPEC+ will have a meeting on Wednesday and is expected to agree to increase output quotas by a further 400K BPD in April, a continuation of their recent policy of hiking output.