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Oil inventories were very tight ahead of the invasion of Ukraine. Oil prices were hovering near $90 per Barrel before the Russian invasion. The idea that Russian oil could come off the market sent prices to more than $125 per Barrel in March, fearing that more than six million barrels would come off the market. The combat the shortfall, the U.S. government, and its allies announced that they would release more than 60m barrels of oil amid the price surge. The hope that Ukraine and Russia are moving toward diplomacy has taken some of the steam out of the upward accelerating oil prices. Still, the market is rife with volatility that presents both opportunities and risks for those who want to start now with oil trading as CFDs.
A Long-Term Problem
The supply and demand dynamic ahead of the pandemic and subsequent Russian invasion of Ukraine was equal. Consumption in 2020 dropped to 88 million barrels and then started to climb as lockdowns were lifted. The lack of spending on infrastructure reduced the volume of oil the markets could produce. As the demand began to exceed the supply, prices started to rise.
Russia is a significant player in the oil and natural gas market. The country exports about five million barrels of crude oil and three million barrels of refined products such as gasoline and diesel fuel per day. Many countries, including the United States, have banned Russian oil and natural gas purchases, which helped to push prices up to the $125 per barrel level on WTI crude oil. The Biden administration had deliberated for days before announcing an embargo as higher gasoline prices have been a political minefield. While there is widespread support for a halt to purchases of Russian oil to help the people of Ukraine, the U.S. population is not comfortable with higher gasoline at the pump and wants something done to rectify the situation. The United States was importing about 600 thousand barrels of Russian oil products and now needs to find another source.
The Campaign has Reached NATO’s Doorstep
The Russian offensive reached NATO’s doorstep on Sunday, March 13, as strikes occurred on a significant military base close to the Polish border. The strike on the airbase killed 35 people and injured 134 more. The airstrike on Yavoriv base in Western Ukraine was described by Russia as a supply line and considered a legitimate target. This strike appears to be an escalation of the conflict.
Is Diplomacy in the Cards?
Talks between Ukraine and Russia have been slow and have yielded few results. In mid-March, news that Russia had agreed to talk without the request that Ukraine lay down its weapons took some steam out of the oil markets. While the Russian President on Friday, March 11, said there had been positive advances, U.S. and European officials do not believe there is any progress.
The U.S. and its allies have enacted heavy sanctions on Russia in response to their aggression to bring Russia to the table. They have made it nearly impossible for Russia to receive any income from the sales of oil, gas, wheat, and metals. Dozens of Russian banks have been removed from the SWIFT system, the international payment system used globally to generate payment transactions.
Israeli Prime Minister Naftali Bennett has attempted to accelerate diplomacy channels to meet with Putin. According to a U.S. official familiar with the matter, U.S. Secretary of State Antony Blinken was briefed on Bennett’s trip to Moscow by Israeli Foreign Minister Yair Lapid in Riga, Latvia.
A Short Term Fix
While the world is working on diplomacy, oil prices continue to move to remain elevated. The White House announced that it would release 30 million barrels from its strategic reserve, and its allies were planning on doing the same. Unfortunately, this is only a drop in the bucket. The U.S. consumes nearly 20 million barrels of crude oil per day. Most of the consumption is gasoline, which can rise to more than 10 million barrels per day alone during the summer months.
The Bottom Line
The upshot is that oil prices will need an increase in supply to push prices lower. Consumption remains strong, and if Russian oil is taken off the market, it could present a long-term problem. WTI oil prices are hovering near $100-110 per barrel, but oil prices could begin to grind higher without new production. With little diplomacy happening between Russia and Ukraine, there’s no telling what could happen next in Ukraine. Without Russian barrels, other countries will need to step up their production to help reduce some of the stress on oil prices. Before you start now with oil trading as CFDs, be sure to follow the recent market performance of WTI oil, Brent crude, and other top oil companies to make more informed trading decisions.
