Russia-Ukraine Peace Talks Mask Unexpected Oil Price Reactions

Brent oil prices have shifted very little over the last two weeks, staying in the range of $65 to $66 per barrel. The Russia-Ukraine peace talks loom large, with bearish sentiment winning out in anticipation of Russian barrels making a return to global markets.

“The probability of the US placing stronger sanctions on Russia is waning, with the market expecting Russian oil trade to make a comeback as a result of the peace talks — yet this sentiment masks emerging signals toward upside," said Rystad Energy’s Senior Vice President, Chief Oil Analyst, Mukesh Sahdev. "Rystad Energy analysis of storage fundamentals, particularly as China’s stockpiling continues with 10% higher imports than needed, indicates that oil prices are unlikely to tank to level of $60 /bbl and stay there for long."

"There is also a lack of clarity around the OPEC+ unwind on which barrels will be exported vs. fed into their own refining system. We are in an opaque vs. non-opaque fundamentals era, with OPEC vs. non-OPEC production becoming an outdated method of analyzing global oil markets. The prompt time spreads between Brent and WTI continue to signal a tighter market. Overall, our view is that backwardation will continue to roll and it’s not time to stay short for long. The path to peace is likely to be non-linear.”

While it is difficult to predict what happens next in the complex peace process involving Ukraine and Russia, the signals are there that oil prices are not tanking to very low levels and Russian energy will flow easily. 

Despite a significant drop in bullish Nymex WTI crude net-long positions, there are signals for accumulation among the commercials and some exhaustion in downward momentum. 

The unsolved fundamentals are likely to be resolved without crashing oil prices. 

The trading world is likely to witness many unexpected trade flow shifts ahead like news of the export of diesel from India to China.