The two major benchmarks of the black liquid are bullish at the start of the London session on Wednesday, bouncing back from earlier declines seen in the previous trading session, as Russia’s invasion of Ukraine continues to bring volatility to the oil market, with ceasefire talks being the latest market trigger.
The global benchmark, the Brent futures is up 2.27%, currently trading $102.18 a barrel while the United States benchmark, the West Texas Intermediate (WTI) is up 1.72%, currently trading $98.11 a barrel as of the time of this writing. Both contracts had earlier declined below the $100 support, with Brent falling to $98.86 a barrel and WTI easing to $94.90 a barrel.
Ukrainian President, Volodymyr Zelenskiy explained in a video address released early on Wednesday that the positions of Ukraine and Russia at peace talks were sounding more realistic, but more time was needed.
What you should know
- Tina Teng, an analyst at CMC Markets explained, “Traders are awaiting more clues from ceasefire talks after a two-day selloff in the oil markets, but the crude prices may continue being under pressure as high inflation will eventually drag on economic growth and weakens demand.”
- She further explained that a strong U.S. dollar is a key element exerting pressure on oil prices and investors expect the U.S. Federal Reserve to adopt a more hawkish monetary policy to curb flaring inflation.
- Analysts expect the Fed to raise its benchmark overnight interest rate by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday to address soaring inflation. A rise in interest rates would strengthen the U.S. dollar and dampen oil demand, as a stronger greenback makes it more expensive for those holding other currencies.
- Oil had settled below $100 on Tuesday, the first time since late February, before the special military operation started. Trading sessions have been volatile since then, with prices hitting 14-year highs on March 7, but since then Brent has fallen nearly $40 a barrel and WTI about $34.
- Prices had also come under pressure this week over concerns of slowing China’s demand, as the world’s most populous country and largest oil consumer imposes stringent measures to contain the spread of the COVID-19 Omicron variant.
- However, according to reports from the Chinese national health commission, the new domestically transmitted cases in China, have fallen by nearly half on March 15 compared with the previous day.
- On the issue in China, Stephen Innes, managing partner at SPI Asset Management explained that lockdown in parts of China could unlock if omicron cases remain mild. He stated, “Covid risks do fade fast especially with the population highly vaccinated.”
Meanwhile, preliminary data from the American Petroleum Institute (API) showed U.S. crude inventories rose by 3.8 million barrels for the week ended March 11, while gasoline inventories fell by 3.8 million barrels and distillate stocks rose by 888,000 barrels, according to sources, who spoke on condition of anonymity.
Official U.S. government inventory data is due on Wednesday. The Organization of Petroleum Exporting Countries and its allies (OPEC+) explained that oil demand in 2022 faced challenges from Russia’s invasion of Ukraine and rising inflation as crude prices soar, increasing the likelihood of reductions to its forecast for robust demand this year.