Oil retreats with focus on Ukraine-Russia talks

Global markets have been rattled by war.
Image: Andrey Rudakov/Bloomberg

WTI crude fell below $100 a barrel for the first time since March 1 as negotiations between Ukraine and Russia appeared to grow more substantive and China imposed a lockdown on an entire province to stem the spread of Covid.

Futures in New York fell more than 8% to a low of $99.76, trading inside a $10 range Monday. West Texas Intermediate has swung more than $35 this month. Brent fell to near $104 a barrel. A further round of talks between Russian and Ukrainian officials focused on discussing a potential ceasefire with an immediate withdrawal of troops and security guarantees, Ukraine negotiator Mykhailo Podolyak said.

The negotiations between the two countries are driving prices lower in the near term as markets are “much more sensitive to sentiment than actual supply and demand calculation,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

Risks to demand have also emerged with a resurgence of lockdown measures in China. China placed 17.5 million people in Shenzhen under a lockdown amid a surge in Covid-19 infections and told people in Jilin province not to travel, the first time the country has sealed off an entire region since April 2020.

There’s a flurry of diplomatic efforts to try and stop the war. A top adviser to Ukraine’s President Volodymyr Zelenskiy said “continuous” discussions with Russia are under way by video, while Russian President Vladimir Putin engaged with his French and German counterparts after they talked with Zelenskiy. US Secretary of State Antony Blinken also spoke with Ukraine’s foreign minister.

That heralds the start of a jam packed week that will test whether Russia plans to repay its international debt and will likely see the Federal Reserve raise interest rates for the first time since 2018, potentially strengthening the dollar. The virus resurgence in China is also causing some concerns about oil demand, while the Federal’s interest rate decision will come on Wednesday.

The prospect of extra oil supply from Iran quickly alleviating a tight market was dashed on Friday after Tehran and world powers suspended talks to restore a nuclear deal. Russia sought US guarantees that sanctions imposed for its invasion wouldn’t affect its planned partnership with the OPEC producer. Iran carried out a missile strike in Iraq after the breakdown of negotiations.

Prices:
  • West Texas Intermediate for April delivery fell $8.69 to $100.64 a barrel at 11 a.m. in New York.
  • Brent for May settlement slid $8.59 to $104.08.

Money has started to flow back into oil exchange-traded funds. The United States Oil Fund ETF, the largest in the oil market, posted its biggest weekly inflow since April 2020 last week. That’s in contrast to the early part of last week when one bearish fund saw a record inflow.

While Russia has been hit with tough sanctions and the U.S has banned imports of its crude, funds to the nation may not be completely choked off yet. India is said to be working out a mechanism to facilitate trade using local currencies, while supertankers were still being booked to load Russian oil off Denmark. At least some ships will be for cargoes that traded prior to the invasion.

© 2022 Bloomberg

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