The United States’ benchmark, the West Texas Intermediate (WTI), is trading below the $90 support zone while the global benchmark, the Brent oil, is struggling to stay above the $90 support zone as U.S. President, Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine.
The agreement to meet was put out by the office of the French President, Emmanuel Macron in the form of a statement on Monday. This could be a last effort towards a diplomatic solution as the U.S still believes that Russia intends to invade Ukraine.
The Brent crude oil futures is down 0.60%, currently trading $90.80 per barrel, after earlier touching $95 last week. The West Texas Intermediate (WTI) crude futures is also down 0.75%, currently trading $89.55 a barrel, off an earlier high of $92.93 last week. U.S. markets will be closed on Monday for the Presidents Day holiday.
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What you should know
- The oil markets have been experiencing a lot of volatility over the past month on worries of a Russian invasion of its neighbour, Ukraine could disrupt crude supplies. However, price gains have been limited by the possibility of more than 1 million barrels a day of Iranian crude returning to the market.
- A senior European Union official said on Friday, a deal to revive Iran’s 2015 nuclear agreement was “very very close”.
- Although the possibility of a Iran deal is high, analysts still hold the bias that the market remains tight, and any addition of oil would help, but prices would remain volatile in the near term as Iranian crude would only likely return later this year.
- National Australia Bank commodity analyst Baden Moore stated, “There’s just so many pressures geopolitically it’s difficult to know what the answer is (on market movements) – with Ukraine and Iran.”
- European Commission President Ursula von der Leyen said Russia would be cut off from international financial markets and denied access to major exports needed to modernize its economy if it invaded Ukraine.
- Commonwealth Bank analyst Vivek Dhar said in a note that “If a Russian invasion takes place as the U.S. and U.K. have warned in recent days, Brent futures could spike above $US100/bbl, even if an Iranian deal is reached.”
- Analysts at Singapore’s OCBC bank said Brent could test $100 in the short term, possibly before the end of first quarter.
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Despite the prospect of $100 oil, ministers of Arab oil-producing countries said on Sunday that the Organization of Petroleum Exporting Countries and its allies (OPEC+) should stick to its current agreement to add 400,000 barrels of oil per day each month to output, rejecting calls to pump more to ease pressure on prices.
To avert a major run up in prices, RBC Capital analysts said the White House is expected to prepare a large strategic petroleum reserves (SPR) release coordinated through the International Energy Agency (IEA).
RBC Capital said in a note, “We anticipate that the U.S. SPR release will be larger than the one in November and more sweet barrels could be offered this time around through direct sale.”
