As an environment of geopolitical uncertainty continues to prevail across the globe, the market responses to the latest developments from the United States to Ukraine have continued unabated. Following weeks of volatility, Oil (CL) is again on a downtrend on the last day of the month.
Peace Talks Continue
Over the course of the past five weeks since the beginning of the Russian Federation’s military engagement in its southern neighbour, Ukraine, Oil’s price per barrel has risen and fallen in response to fears concerning supply line disruptions. Western powers, including the United States and the European Union, have progressively applied sanctions on Russia in an attempt to force an end to the hostilities.
These economic measures, as well as the divestment of energy giants such as Total (TTE.PA) and BP (BP-L) from Russia, may have led many traders on the petroleum market to conclude that a shortage in the supplies of Crude necessary to keep the world economy running was in the cards. Given that Russia, one of the world’s largest producers of Oil, exports eight million barrels of black gold per day, it may come as no surprise to market watchers that the rising costs associated with doing business in Russia helped push the price of petrol to a near 14-year high earlier this month.
However, following some conciliatory statements lately released from the Kremlin, some may be wondering whether an end to the conflict is in sight. On Tuesday, Russian government figures signalled that their military forces would be withdrawn from the region around Kiev, Ukraine’s capital. With peace talks between the two post-Soviet nations ongoing in Istanbul, it may seem that Russia is on its way to de-escalation. As of the time of writing, Oil’s price per barrel was down by nearly 4.3%.
Biden Opens the Pump?
Despite these somewhat encouraging signs, consumers struggling with the high inflation to which rising petroleum prices contribute may not be out of the woods yet. Experts on the Oil supercartel OPEC+ estimate that today’s meeting will conclude without a change to the current plan for steady, albeit modest, production increases. Despite attempts by the International Energy Agency (IEA) to encourage countries like Saudi Arabia and the United Arab Emirates to raise production levels even faster in order to compensate for a potential shortfall in supplies emanating from Russia, the smart money may very well be on OPEC+ remaining indifferent to the IEA’s efforts.
Perhaps in response to the toll high prices at the pump have had on wide swathes of the American economy, the White House may be weighing the prospect of releasing Oil reserves. According to inside sources that have chosen to remain anonymous, the Biden administration could move to release over 180 million barrels from strategic reserves held by the U.S. government over the next six months. This decision, if taken, could relieve price pressure on this key Commodity in the United States by significantly increasing the available supply at a time when inventories are quickly dropping. Possibly in anticipation of this announcement, which could come as soon as later today, international benchmark Brent Oil (EB) was trading down by 3.2% as of the time of writing. Brent’s price has dropped by 17% since its March 8th high of nearly $130.
In addition to the possible release of American reserves and easing of the conflict in Ukraine, the coronavirus lockdown of Chinese megacity Shanghai could be reducing global petrol demand by up to 200,000 barrels a day. It seems that, for the moment, upward price pressure might have eased. On Thursday morning, Oil had declined by more than 17% from its March 8th high closing price of nearly $125. However, traders may wish to wait for further developments before coming to conclusions about Oil’s near-term trajectory following the past month’s ups and downs.