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Oil prices have witnessed considerable choppy performance on Tuesday, with front-month WTI futures at one point hitting fresh seven-year highs at the $96.00 level, before pulling back sharply to below $93.00.
Choppy trade conditions are being driven by the unusually high level of uncertainty pertaining to ongoing escalation of the Russia/Ukraine crisis.
The US and EU are readying a round of fresh economic sanctions against Russia after the country broke international law in recognizing pro-Russia rebel-held regions of Eastern Ukraine as independent nations. Russia’s Parliament just voted in favour of allowing troops to be deployed on a “peacekeeping” mission to the rebel-held regions in Donetsk and Luhansk.
NATO Secretary-General Jens Stoltenberg was recently in news headlines and continued to reiterate warnings that Russia continues preparations for a full-scale invasion of Ukraine and many geopolitical strategists view Russia’s latest move as making war with Ukraine more likely.
Energy market participants thus continue to fret about potential disruptions to European/global energy supplies should the West enact even tougher sanctions on Russia in case of a full-scale invasion and this should continue to underpin oil prices. Russia produces more than 11M barrels of oil per day, over 10% of global supply.
It also supplies about 40% of the EU’s natural gas consumption, with any disruption to gas supplies likely to have a spillover effect on crude oil markets via higher demand.
Calls for oil to hit $100 per barrel are growing loader. Indeed, front-month Brent futures came very close in earlier trade. The potential for a rally over $100 a barrel has received an enormous boost, those who have bet on such a move anticipated the escalation of the conflict.
Markets witness oil in a period of frothiness and nervousness, spiced up by geopolitical fears and emotions. Given the prevailing mood, oil prices may very likely climb into the triple digits in the near term.
Other issues closely watched include indirect US-Iran talks about a return to the 2015 nuclear pact, which could end US sanctions on Iranian oil exports, thus freeing up well over 1M barrels per day in additional supply for global markets.
OPEC+ output policy amid heightened geopolitical tensions in Eastern Europe is under scrutiny. Iraq’s Oil Minister played down the prospect that the group might deviate from their existing policy of increasing output quotas by 400K barrels per day/month.
Geopolitics will continue as the factor to watch, with traders waiting for US-EU sanction announcements and keeping an eye on military developments in Eastern Ukraine. US President Joe Biden will be unveiling sanctions.
Coming up, on Wednesday, oil traders will be watching the release of weekly US crude oil inventory data from the American Petroleum Institute, which comes a day later than usual owing to the US holiday on Monday.
