Oil gave up early gains in Asia, along with gold, after France said that the US and Russian presidents agreed to a summit meeting over Ukraine.
West Texas Intermediate plunged as much as 0.8%, reversing a more than 2% advance, after US President Joe Biden and Russian President Vladimir Putin agreed to the “principle” of a summit proposed by French President Emmanuel Macron, according to statements from the White House and the Elysee. There was no immediate confirmation from the Kremlin.
Earlier, the US told allies that any Russian invasion would potentially see it target multiple cities beyond the capital, Kyiv. Moscow, which has repeatedly denied it plans an invasion, said over the weekend that its forces would remain in Belarus indefinitely.
Renewed warnings from the US over the weekend initially pushed up oil prices on Monday, following the first weekly decline this year on signs of an easing stand-off and hopes of a revival of Iran’s nuclear deal. Meanwhile, bullion fell back below $1 900 an ounce after earlier hitting an eight-month high.
Global commodity markets have been in thrall to the prolonged standoff over Ukraine, which comes at a time of already robust demand, surging prices and concern over fast-depleting inventories. Raw materials are trading close to a record, boosting inflation and complicating the task for central banks as they seek to tame the pace of price gains without derailing the recovery.
“The oil market continues to be whipsawed by Russia-Ukraine developments,” said Warren Patterson, head of commodities strategy at ING Groep NV, adding that safe haven demand has driven gold prices. “A proposed summit does offer some relief to the market, as it suggests that both sides are still possibly open to dialog. Asset prices, particularly commodities, will continue to be heavily influenced by Russia-Ukraine noise.”
Macron will work with stakeholders to prepare summit talks between Biden and Putin to discuss “security and strategic stability in Europe,” the French government said in an emailed statement. The timing and format of the summit are still to be determined, and it will be called off if Russia invades Ukraine, according to a US official who asked not to be identified.
Any attack from multiple locations could essentially fence Ukraine in, potentially upending commodity markets as regional flows are disrupted and possibly targeted by Western sanctions. Traders are also tracking wheat, which both Ukraine and Russia export, as well as aluminum and nickel.
Oil investors, meanwhile, were following negotiations to rekindle Iran’s 2015 nuclear agreement, which remain bogged down. Germany’s chancellor warned that it’s now or never to save the accord, which could usher in a return to the world market of official oil supplies from the Persian Gulf nation.
“Geopolitics continues to hog the limelight and will likely influence the direction of commodity markets for the time being,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Volatility is here to stay for a while.”
Oil could be set for a “prolonged period” above $100 a barrel this year, with world demand poised to expand to a record, Vitol Group Chief Executive Officer Russell Hardy told Bloomberg Television. The head of the world’s largest independent oil trader said that the market will get tighter, with daily consumption set to rise well above pre-Covid levels by the end of 2022.
In a signal of the crude market’s bullishness, nearby contracts for WTI and Brent are commanding significant premiums over those further out, indicating that traders are clamoring for barrels right now. In Asia, refiners are seeking to ramp up their run rates to benefit from healthy margins.
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