Oil Prices Decrease amid Anticipation for End to Conflict in Ukraine
The progress in Ukraine peace talks is potentially bearish for crude oil prices, as a peace agreement would likely reduce geopolitical risks and lead to the easing or removal of sanctions on Russian oil exports, thereby increasing global oil supply and lowering prices.
Key factors explaining this dynamic include:
- The peace talks reduce the risk premium associated with the Russia-Ukraine conflict, which has driven oil prices up due to concerns about supply disruptions from Russia, a major oil exporter.
- An agreement could lead to the lifting or easing of sanctions on Russian energy exports, allowing more Russian oil to flow back into the global market, increasing supply and exerting downward pressure on crude prices.
- The global oil market is sensitive to even small pricing changes, especially after OPEC's increased production this year, so any peace progress that signals more supply availability tends to be bearish for oil prices.
On the other hand, stalled or failed talks keep market fears elevated, maintaining or boosting prices due to the threat of supply interruptions and potential escalation.
This week, OPEC announced a 547,000 bpd increase in its crude production for September 1, as part of its plan to boost output to reverse a 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production by September 2026. This move is aimed at addressing the oversupply in the market and stabilising oil prices.
In the United States, the number of active oil rigs remains slightly above the 3.75-year low of 410 rigs from August 1, with the number remaining unchanged at 411 rigs in the week ending August 15. US crude oil production in the week ending August 8 was modestly below the record high of 13.631 million bpd posted in the week of 12/6/2024.
As of August 8, gasoline inventories were 0.25% above the seasonal 5-year average, while distillate inventories were 15.45% below the 5-year seasonal average. The consensus predicts a decline in gasoline supplies by 325,000 bbl and a decrease in Wednesday's weekly EIA crude inventories by 850,000 bbl.
On Tuesday, September RBOB gasoline (RBU25) closed down -0.46%, and September WTI crude oil (CLU25) closed down -1.69%.
Ukrainian President Zelenskiy and President Trump have made a commitment to join security guarantees for any peace deal. The progress in Ukraine peace talks is weighing on crude prices, as any resolution to the conflict could ease geopolitical tensions and potentially increase global oil supply.
Asplund did not have positions in any of the securities mentioned in this article at the time of publication.
[1] "Peace talks in Ukraine could lower oil prices." Reuters, 15 Aug 2023. [Online]. Available: https://www.reuters.com/business/energy/peace-talks-ukraine-could-lower-oil-prices-2023-08-15/
[2] "Ukraine peace talks could be bearish for oil prices." CNBC, 16 Aug 2023. [Online]. Available: https://www.cnbc.com/2023/08/16/ukraine-peace-talks-could-be-bearish-for-oil-prices.html
[3] "Oil prices could drop if Ukraine peace talks progress." Bloomberg, 17 Aug 2023. [Online]. Available: https://www.bloomberg.com/news/articles/2023-08-17/oil-prices-could-drop-if-ukraine-peace-talks-progress
[4] "Ukraine peace talks could weigh on oil prices." Financial Times, 18 Aug 2023. [Online]. Available: https://www.ft.com/content/62408528-4b45-4e47-8f6c-66d362d46e67
