Oil Prices Dip Slightly on Anticipation of US Sanctions Relief for Russia
Introduction
The global oil market witnessed a slight decline in prices on Friday, March 11th, as traders anticipated the potential lifting of US sanctions against Russia amid ongoing negotiations for a resolution to the conflict in Ukraine.
US Sanctions and Their Impact on Russian Oil Supply
Prior to President Joe Biden’s departure from the White House, the United States imposed sanctions on over 180 vessels and major Russian oil companies Gazprom Neft and Surgutneftegas, aiming to curtail Russia’s oil revenue. These measures have constrained the supply of crude from Russia, one of the world’s top three oil producers, contributing to elevated prices.
Renewed Engagement Between US and Russia
However, following a phone call between former US President Donald Trump and Russian President Vladimir Putin on February 12th, Moscow and Washington expressed a desire to engage on a new footing. Trump has since reversed his country’s previous stance on the Ukraine war, echoing the Kremlin’s rhetoric that Kiev bears responsibility.
Market Expectations and OPEC+ Production
Around 11:15 GMT on Friday, Brent crude for April delivery lost 0.81% to $75.86 per barrel. The US benchmark, West Texas Intermediate (WTI) crude, also for April delivery, declined by 0.86% to $71.86 per barrel. Despite the dip, oil prices are expected to record a second consecutive weekly gain.
According to Han Tan, an analyst at Exinity, markets increasingly anticipate that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will delay its planned production increase in April. Under the current schedule, barrels would be gradually added from April onwards, with an additional 120,000 barrels per day per month for 18 months. However, OPEC+ has postponed its increase three times already, citing insufficient oil prices to justify additional supply.
Factors Influencing Oil Prices
Besides the potential lifting of US sanctions on Russia, several other factors have influenced oil prices in recent weeks:
- Demand concerns: The ongoing uncertainty surrounding the global economic recovery amid the COVID-19 pandemic has raised concerns about demand for oil.
- Geopolitical tensions: Escalating tensions between Russia and Ukraine continue to cast a shadow over the market, with potential disruptions to Russian crude exports remaining a key risk factor.
- Inventories: The US Energy Information Administration (EIA) reported a larger-than-expected increase in US crude inventories, putting downward pressure on prices.
Conclusion
The slight dip in oil prices on Friday suggests that traders are cautious about the pace of the market’s recovery. Anticipation of US sanctions relief for Russia, combined with concerns about demand and geopolitical risks, is contributing to a more subdued trading environment. However, sustained supply constraints and expectations of a delayed OPEC+ production increase are likely to support oil prices in the short term.
