Crude Oil Futures Rise On IEA Supply Forecast Amid Progress In Russia-Ukraine Talks


Crude oil futures were higher in mid-morning trade in Asia on March 17 as the International Energy Agency’s warning of potential supply shortages overshadowed reports of progress in Russia-Ukraine peace talks, says an article S&P Global.

IEA Warning

At 11 am Singapore time (0300 GMT), the May ICE Brent futures contract was up $1.14/b (1.16%) from the previous close at $99.16/b, while the April NYMEX light sweet crude contract was $1.22/b (1.28%) higher at $96.26/b.

The IEA warned March 16 of a potential global oil supply shock, with an estimated 3 million b/d of Russian oil production likely to be shut in next month due to sanctions and buyers shunning the major exporter following its invasion of Ukraine, S&P Global Commodity Insights reported earlier.

“Supply losses of this magnitude would be more than enough to keep the market in deficit for at least the next two quarters,” ING head of commodities strategy Warren Patterson said in a note March 17.

Lowering demand growth

The IEA in its monthly oil market report also lowered its demand growth estimate for 2022 by 1.1 million b/d to 2.1 million b/d on the back of higher prices, reduced Russian consumption and the hit to aviation from Russian air space restrictions. It now sees 2022 demand at 99.6 million b/d.

Also capping the rise in oil prices was optimism that Russia-Ukraine peace talks were making progress, with a 15-point peace plan being discussed, according to media reports.

Russia’s foreign minister Sergei Lavrov said March 16 there was “hope for reaching a compromise” between the two sides, with a statement “close to being agreed.”

Conflict making progress

Ukrainian President Volodymyr Zelensky said settlement talks were starting to “sound more realistic.” However Mykhailo Podolyak, a senior adviser to Zelensky, said the 15-point peace plan was a request of the Russian side and Ukraine “has its own positions,” and the only thing that could be confirmed was that it would include “a ceasefire, withdrawal of Russian troops and security guarantees from a number of countries.”

Analysts also cautioned that potential roadblocks remained.

“Downward [price] pressure would have come from reports that Russia-Ukraine were making progress in their negotiations, although possibly the market is reading too much into this,” Patterson said.

A build in US crude inventories also capped the rise in oil prices.

Brent-Dubai EFS

American Petroleum Institute data released late March 15 showed a 3.75 million-barrel build in US crude stocks in the week to March 11, while analysts surveyed by S&P Global March 14 had pointed to a 200,000-barrel increase over the period, S&P Global reported earlier.

Sentiment in the Middle East crude market also continues to weaken as buyers eye alternative grades outside the region. A narrowing of the Brent-Dubai EFS spread could make the purchase of arbitrage barrels a more viable option, market sources said.

At 11 am (0300 GMT) Singapore time, the May Brent/Dubai Exchange of Futures for Swaps was pegged at $8.38/b, down from $8.65/b at the Asia close March 16. The EFS is an indicator of North Sea low sulfur crude value versus Middle East high sulfur crude, and a narrower EFS makes crude priced against Dubai less economically attractive compared to Brent-linked ones.

Dubai swap values were also lower in mid-morning trade in Singapore March 17. The May Dubai swap was pegged at $90.78/b at 0300 GMT, down from $94.47/b at the Asian market close the day before.

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Source: S&P Global