- WTI has pulled back sharply to the $93.00 zone after hitting new seven-year highs at $96.00 earlier in the session.
- Oil markets await announcements of US and EU sanctions on Russia after it recognized the independence of breakaway regions in eastern Ukraine.
- As the risk of a full-scale Russian-Ukrainian war mounts, commodity strategists continue to call for WTI to hit $100 a barrel.
Oil prices fell sharply on Tuesday, with WTI futures of the first month at one point hitting new seven-year highs in the $96.00 area, before pulling back sharply below $93.00. The choppy trading conditions are being driven by the unusually high level of uncertainty related to the ongoing escalation of the crisis between Russia and Ukraine. The United States and the EU are preparing a round of new economic sanctions against Russia after the country broke international law by recognizing regions of eastern Ukraine controlled by pro-Russian rebels as independent nations. Meanwhile, Russia’s parliament has just voted to allow the deployment of troops on a “peacekeeping” mission in the rebel-held regions of Donetsk and Lugansk.
NATO Secretary General Jens Stoltenberg was recently making remarks and continued to reiterate warnings that Russia is continuing to prepare for a full-scale invasion of Ukraine and many geopolitical strategists see Russia’s latest move as making war with Ukraine more likely. Therefore, energy market participants remain concerned about potential European/global energy supply disruptions should the West enact even tougher sanctions against Russia in the event of a full-scale invasion and this should continue to underpin oil prices. Russia produces more than 11 million barrels of oil per day, more than 10% of the world’s supply. It also supplies around 40% of the EU’s natural gas consumption, and any gas supply disruption is likely to have an indirect effect on crude oil markets through higher demand.
Demands for oil to hit $100 a barrel are mounting. In fact, first month Brent futures were very close in previous trading. “The potential for a rally to over $100 a barrel has been given a huge boost,” analysts at oil brokerage PVM said on Tuesday, adding that “those who have bet on such a move anticipated the escalation of the conflict.” Baer said that “we see the oil market in a period of turmoil and nervousness, fueled by fears and geopolitical emotions…Given the prevailing mood, oil prices are very likely to hit triple digits in the near term.” .
Other issues being watched include indirect talks between the US and Iran on a return to the 2015 nuclear pact, which could end US sanctions on Iranian oil exports, thus freeing up more than 1 million barrels per day in additional supply for global markets. Meanwhile, OPEC+ production policy amid heightened geopolitical tensions in Eastern Europe is under scrutiny. Iraq’s Oil Minister downplayed the possibility that the group could deviate from its current policy of increasing production quotas by 400,000 barrels per day/month.
Geopolitics will remain the main theme to watch, with traders awaiting US/EU sanctions announcements and keeping an eye on military developments in eastern Ukraine. US President Joe Biden will reveal the sanctions and speak on Ukraine and Russia at 18:00 GMT. Coming up on Wednesday, oil traders will be watching for the release of weekly US crude oil inventory data from the American Petroleum Institute, which comes a day later than usual due to the US holiday on Monday.
Additional technical levels
Source: Fx Street
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