Oil prices plummet as Russia-Ukraine peace talks show signs of promise
Oil prices nosedived on Tuesday afternoon across both major benchmarks – extending losses from the previous day – after Russia called peace talks with Ukraine constructive, while China’s latest lockdowns hit fuel demand.
With volatile prices increasingly influenced by evolving geopolitical factors – the two events caused fears over supply shortages to recede and demand expectations to drop.
Brent Crude fell 5.74 per cent to $106 per barrel, while WTI Crude declined 5.85 per cent to $99.76 – dropping below the $100 milestone.
Ukrainian and Russian negotiators met in Turkey today for the first face-to-face talks in nearly three weeks.
The top Russian negotiator Vladimir Medinsky described the talks as “constructive”.
Ukraine proposed adopting neutral status in exchange for security guarantees at the talks, meaning it would not join military alliances or host military bases.
One of the country’s negotiators, Oleksander Chaly said: “If we manage to consolidate these key provisions, and for us this is the most fundamental, then Ukraine will be in a position to actually fix its current status as a non-bloc and non-nuclear state in the form of permanent neutrality.”
While it is remains unclear if any firm agreements will be reached, the developments are enough to put oil prices under heavy pressure.
Both major benchmarks have rallied this month amid fears of potential supply shortages and disruption, which have been exacerbated by the rollout of Western sanctions on Russia.
These measures contributed to historic rallies, which saw prices peak at 14-year highs of $139 per barrel on March 7 after the UK and US imposed restrictions on Russian oil.
However, while prices remain elevated – rallies have subsided in recent weeks with the EU still split over imposing their own sanctions on Russian energy supplies.
Forecasting potential downside scenarios, UBS predicts prices could return to $80-90 per barrel if there is further de-escalation in the Russia-Ukraine conflict and a limited drop in Russian crude production.
Meanwhile, the latest surge in Covid-19 cases across China has also weighed down on prices.
The government has announced new lockdowns in Shanghai this week, curbing fuel demand expectations in the country.
China is the world’s biggest oil importer, and Shanghai accounts for about four per cent of China’s oil consumption, according to data from ANZ Research.
Commerzbank analyst Carsten Fritsch said: “China’s zero-COVID policy is bringing some relief to the oil market, albeit involuntarily, which is very tight due to the supply outages from Russia.”
As for potential tailwinds, OPEC+ is set to meet later this week and is unlikely to agree to further raised output targets – which could reignite supply fears.
It has so far failed to reach fairly modest increases of 400,000 barrels per day due to capacity problems and concerns over supply gluts later this year.
Multiple members are also wary of antagonising Russia – with the organisation taking a broadly neutral stance on the conflict.
The energy ministers of Saudi Arabia and the United Arab Emirates said the group should not engage in politics despite mounting pressure to take action against Russia over its invasion of Ukraine.
Commenting on the OPEC+’s stance, OANDA senior market analyst Craig Erlam said: “The group has repeatedly stated its desire to remain apolitical and base its decisions purely on achieving a balanced market. Given how unbalanced the market is and the fact that at the centre of the alliance is the country to blame for the most recent surge in oil prices, it’s hard to view a decision to not increase output targets as anything but political.”