The barrel of black gold continues to move away from its highs and the psychological bar of $100.
Oil prices continued to fall on Wednesday, approaching pre-Russian military invasion of Ukraine levels, weighed down by fears of a slowdown in black gold demand amid optimism about ceasefire talks between Moscow and Kiev .
At the end of a highly volatile session, the North Sea barrel of Brent for May delivery fell 1.89% to finish at $98.02.
A barrel of West Texas Intermediate (WTI) for April delivery fell 1.49% to $95.04.
Thus, the two references are moving well below $100 and not far from their price levels before the Russian military’s invasion of Ukraine on February 24 and the subsequent Western sanctions, which caused the price of black gold to rise.
“These steps follow the hopes and expectations sparked by developments between Russia and Ukraine,” said Matt Smith, Kpler’s chief of oil analysis.
New talks between Kiev and Moscow have been described by Ukrainian President Volodymyr Zelensky as “more realistic”, even as Russia continues to tighten its grip.
The offensive and the determination of the two camps did not prevent the continuation of parallel talks, which were restarted Monday via videoconference at the level of the delegations.
Resumption of the rise?
Kremlin spokesman Dmitry Peskov said on Wednesday that negotiators were now discussing “a compromise” that would make Ukraine a neutral country, modeled on Sweden and Austria.
“There are very concrete formulas that I think are close to an agreement,” said the head of Russian diplomacy, Sergei Lavrov.
Given the price drop, “investors seem to place a lot of importance on these neutrality plans, but I should be extremely cautious on this point,” analyst Matt Smith warned.
He said crude oil prices should rise again as we prepare for a lack of supply.
“In theory there will be a lack of supply for the next two weeks,” he assures.
After the invasion and the massive salvo of Western sanctions, Russian oil purchases have slowed, “not to mention the time lag between what was bought and what we will see delivered,” the analyst explains.
The International Energy Agency (IEA) also said on Wednesday it feared a “shock” to the world’s oil supply following sanctions imposed on Russia after its invasion of Ukraine.
Russia is the second largest exporter of crude oil in the world.
According to Stephen Brennock, an analyst at PVM Energy, other factors are pulling oil prices down, such as “Covid-19 fears are returning”, or even “renewed hopes for a breakthrough in Iran’s nuclear program negotiations”.
China is currently facing its worst coronavirus outbreak since early 2020. Sanitary lockdowns have been declared in several Chinese cities, leading investors to fear a slowdown in the country’s economy and thus a decline in gold demand.
In addition, obstacles to reviving the Iran nuclear deal appear to have been lifted, according to statements from Russia on Tuesday.
The United States ruled that a compromise was “close” to salvage this agreement, which would lead to the lifting of sanctions against Iran, a founding member of the Organization of Petroleum Exporting Countries (OPEC), and his return at full export enable capacity on the oil market.
Finally, data on weekly US crude inventories, which rose much more strongly than expected (+4.3 million barrels), is unlikely to support prices.