Oil posted its first weekly loss since Russia invaded Ukraine and sparked one of the most uncertain and volatile periods the market has ever experienced. Futures in New York lost 5.5% this week, while Brent crude dropped 4.6%. Notably, the international benchmark settled above $112 per barrel, over $30 off its Monday rally that saw it explode to nearly $140.
Market prices speedily and violently whipsawed over the five days as a result of a flurry of information and news including a US ban of Russian crude imports and the United Kingdom’s slow phase-out of them.
Most of the sector is already avoiding and banning Russian oil. In one recent demonstration of its pariah status, there were no buyers in a tender for crude from the nation’s the Far East. In that context, nuclear talks came to a standstill, prolonging the absence of Iranian barrels in a market that is now desperate for extra supplies.
The managing member of the global macro program at Tyche Capital Advisors LLC, Tariq Zahir, stated:
“Volatility is not going to disappear anytime soon. You can see $10-$15 increases at the “blink of an eye” due to a tight market and geopolitical risks.”
The fallout from the war has now rippled through commodity markets from wheat to the major fuels including diesel and gasoline. Growing inflationary pressure around the globe is compelling banks to contemplate a phase of monetary tightening that may choke off the rebound.
Notably, Rystad Energy AS has projected that Brent might soar to a staggering $240 per barrel this summer in case nations continue to sanction Russian oil imports, while Goldman Sachs said that demand destruction is the only means of buffering high prices.
Paul Horsnell, head of commodities research at Standard Chartered Plc, stated:
“Extreme intraday volatility perhaps says something about several things: degree of uncertainty, the nature of the news flow, the spillover from some chaotic spot markets and the relatively low liquidity levels at some points.”
Increasing penalties against Russia have resulted in fears that an already tight oil market might be stretched further as a result of the absence of the nation’s 5 million barrels of oil exports. Nonetheless, OPEC has insisted that there is no shortage, and continued with its output hike of 400,000 barrels per day.
- Brent for May settlement gained around $3.34 to close at $112.67 per barrel
- West Texas Intermediate (WTI) rose by $3.31 to settle at $109.33 per barrel in New York
Open interest seen in the main oil futures contracts has dropped to a 6-year low in recent days as the traders retreat from risk. Volatility has exploded, and the exchanges have increased margins, effectively raising the cost of purchasing and selling. Brent traded as high as $139.13 per barrel this week, and as low as $105.60.
On March 9, the United Arab Emirates called on OPEC+ to increase output faster, though the country’s energy minister seemed to later temper this message. The cartel that counts Russia as a primary member, has so far resisted calls from the consumers to pump more, insisting that the surge in price is underpinned by geopolitical tensions instead of a supply shortage.