Bearish sentiment for oil prices came in many forms this week as the specter of a ceasefire in the Russia/Ukraine war combined with a negative inflation report and a large gain in crude stocks sending prices lower on the week.
The new sanctions on Russian oil exports are starting to show signs of an impact which was the only bullish news this week. WTI saw a High of $73.70/bbl on Tuesday and a Low of $70.25 on Wednesday. Brent hit a High of $77.20 on Tuesday and a Low of $74.10 on Thursday. Both grades settled lower week-on-week. The WTI/Brent spread is currently -$4.10.
After a phone call with Vladimir Putin, US President Trump said Russia would be willing to start peace talks with Ukraine which could lead to a ceasefire in the war. Such action could allow the US to lift the current sanctions on Russian oil exports. However, analysts see Trump’s proposed 25% tariff on steel and aluminum imports as having a negative impact on the global economy which could weigh on oil demand.
The last Biden sanctions on Russian oil exports appear to be having an impact as buyers in Asia, specifically, China and India, look for other sources and as tanker rates to ship the Urals have risen as well. Markets are increasingly reluctant to accept sanctioned shipments. However, the International Energy Agency in Paris believes “work arounds” will happen again noting that Russian oil production has not been lowered by much.
Meanwhile, the Trump administration has imposed new sanctions on people and companies facilitating the sale of Iranian oil to China in an effort to greatly reduce Iran’s oil exports while India has agreed to buy more US oil and LNG to help reduce the trade deficit between the two countries and to help India avoid new tariffs.
Inflation is heading upward, as January’s Consumer Price Index was reported to be 3.0%, up from December’s 2.9% with the monthly price increases alone at +0.5%. In response, the US Federal Reserve expressed concerns over the report and stated that now is not the time to consider any further interest rate cuts. Markets reacted negatively to this news.
The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil and distillate inventories increased while gasoline decreased. US oil production was 13.5 million b/d and the Strategic Petroleum Reserve was higher at 395 million bbl.
New claims for unemployment benefits last week were at 213,000, lower than the forecasted 214,000 and the prior week’s 220,000 while continuing claims fell to 1.85 million from 1.89 million. And, despite a dip midweek on the inflation report all 3 major US stock indexes are higher on the week. The USD is lower which may be helping set a floor for crude prices this week.