The black liquid’s benchmarks ended the week bearish, posting their steepest weekly decline since November 2021, as investors look towards a silver lining of potential improvements to the supply outlook that has been disrupted by Russia’s invasion of Ukraine.
The price of the benchmarks have soared to multiyear high since Russia began a special military operation into Ukraine in February, marking the start of a military war between the two neighbouring nations.
At the start of the week, futures benchmarks hit their highest levels since 2008, then pulled back sharply as some producing countries signalled they may boost supply.
What you should know
- The global benchmark, the Brent crude futures ended the week at $112.67 a barrel, after hitting a weekly session low of $107.13. The United States benchmark, the West Texas Intermediate (WTI) crude futures ended the week trading at $109.33 a barrel, off the session low of $104.48.
- On Friday, we saw some bullish price action from the benchmarks as supply concerns grew when talks to revive the 2015 Iran nuclear deal faced the threat of collapse after a last-minute Russian demand forced world powers to pause negotiations.
- UBS analyst Giovanni Staunovo stated, “Iran talks on hold is one factor supporting markets. Market participants will now closely track Russian export data to get a sense how much (supply) is disrupted.”
- U.S. President Joe Biden said the G7 industrialized nations will revoke Russia’s “most favored nation” trade status, and announced a ban on Russian seafood, alcohol and diamonds, adding to the oil ban the U.S. imposed last week.
- Next week, Staunovo explained that the focus will shift to oil market reports from the International Energy Administration (IEA) and the Organization of Petroleum Exporting Countries and its allies (OPEC+). Both have indicated the market should be oversupplied this year.
- The Brent, which rose over 20% the week prior, was down 4.8% this week after hitting $139.13 on Monday. U.S. crude recorded a weekly drop of 5.7% after touching a high of $130.50 on Monday. Both contracts last touched these price peaks in 2008.
This week, the Russia-Ukraine conflict pushed the United States and many Western oil firms to stop buying Russian oil. There was talk of potential supply additions from Iran, Venezuela and the United Arab Emirates. UBS head of economics Norbert Ruecker stated, “We have a close eye on the pressure valves that will absorb the supply shock.”
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 OPEC+, given that Russia is part of the grouping. This is on top of concerns that some OPEC+ producers, including Angola and Nigeria, have struggled to meet production targets, limiting the group’s ability to offset Russian supply losses.
