Oil benchmarks prices have had a rollercoaster week but the bears won the heated battle as the two major benchmarks are headed for their biggest weekly decline since November as investors looked towards ways in which disruptions of Russian oil supply could be remedied in a tight market.
Oil prices soared after Russia invaded Ukraine and hit their highest levels since 2008 on Monday. The global benchmark, the Brent crude oil futures, which rose over 20% last week, is on track for a weekly fall of approximately 7.6% after hitting a 14 year high of $139.13 on Monday.
Similar happened with the United States benchmark, as the West Texas Intermediate (WTI) crude is headed for a weekly drop of approximately 8.4% after touching a high of $130.50 on Monday, also a 14 year high
What you should know
- As a recap, the volatility seen in the market is as a result of the Russia-Ukraine conflict which as pushed the United States and many Western oil firms to stop buying Russian oil.
- This sprung up talks of potential supply additions from Iran, Venezuela and the United Arab Emirates (UAE). Since Monday, both benchmarks have pulled back their advances on hopes that these producing countries may come back into the marker and the UAE acting to increase supply.
- UBS head of economics Norbert Ruecker stated, “We have a close eye on the pressure valves that will absorb the supply shock. These include more strategic storage releases, more U.S. shale oil, and more petro-nations’ oil including the element of the high diplomatic cost the West is willing to bear by possibly allowing Iran and even Venezuela back to the market, and ultimately the economic costs by high fuel prices curbing demand and temporarily denting growth.”
- Also easing bullish supply concerns is Russian producer Surgutneftegaz allowing buyers from China, the world’s top oil importer, to receive oil without providing letters of credit (LC) in order to bypass Western sanctions, three people with knowledge of the matter said.
- Russia rivals Saudi Arabia for the position of the world’s top exporter of crude and oil products combined, with exports of around 7 million bpd representing 7% of global supply. The European Union, heavily reliant on Russian energy, has, however, not joined the United States and Britain in banning Russian oil.
- Commonwealth Bank analyst Vivek Dhar explained that in the near term, supply gaps are unlikely to be filled by extra output from members of the Organization of Petroleum Exporting Countries and its allies (OPEC+), being that Russia is part of the cartel.
OPEC+ member Iran has yet to seal a nuclear deal with world powers that could release its sanctions barrels to the market, but Europe’s top diplomat said talks on an almost completed accord were “paused.” In addition, some OPEC+ producers, including Angola and Nigeria, have struggled to meet their production targets, limiting the group’s ability to offset Russian supply losses.
