Market Analysis

Oil Declines on Ukraine Peace Deal Hopes and Supply Easing

Amos Simanungkalit · 13 Feb22K Views

Image Credit: Reuters

Oil prices dropped on Thursday, driven by expectations that a potential peace agreement between Ukraine and Russia could lead to the end of sanctions disrupting supply, and concerns over U.S. President Donald Trump’s proposed reciprocal tariffs that fueled inflation worries.

By 0141 GMT, Brent crude futures were down 55 cents, or 0.73%, at $74.63 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 52 cents, or 0.73%, to $70.85. Both Brent and WTI saw declines of more than 2% on Wednesday after Trump revealed that Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy had separately expressed interest in peace talks, prompting Trump to order U.S. officials to begin discussions aimed at ending the war in Ukraine.

Sanctions on Russian oil, imposed after its invasion of Ukraine nearly three years ago, have been a key factor in pushing oil prices higher. Russia is the world’s third-largest oil producer, and analysts at ANZ noted that the prospect of peace talks led to optimism that risks to crude supply would ease.

The sanctions have pushed Russia’s oil production lower, contributing to recent price increases. Analysts highlighted that U.S. sanctions on Russian companies and vessels had worsened the supply situation.

Trump’s threat to impose additional tariffs on U.S. trade partners also weighed on prices, as fears grew that the tariffs could dampen economic growth and reduce oil demand. Trump announced plans to impose reciprocal tariffs on any country that charges duties on U.S. imports, escalating concerns about a potential global trade war and accelerating U.S. inflation.

Additionally, an increase in U.S. crude oil inventories added pressure on the market. According to data from the Energy Information Administration (EIA), crude stocks rose by 4.1 million barrels to 427.9 million barrels during the week ending February 7, exceeding analysts' expectations for a 3 million-barrel increase.