WTI stabilises in low $100s after Monday’s dump as EU nears deal on embargo of Russian oil

• Oil prices have stabilised on Tuesday after a sharp deterioration in global risk appetite on Monday triggered a steep sell-off.
• After dropping $8.0 on Monday, WTI has stabilised in the low $103.00s.
• Analysts suspect the scope for further downside is limited as the EU approaches a deal on a Russian oil embargo.

Oil prices have stabilised on Tuesday after a sharp deterioration in global risk appetite on Monday triggered a steep sell-off. After falling nearly $8.0 on Monday from above $110 per barrel, front-month WTI futures have on Tuesday found support above the psychologically important $100 mark and are currently trading roughly flat on the day in the mid-$102.00s.

Risk-off conditions on Monday that weighed on oil were a result of investors fretting about a combination of bearish factors, including; 1) worries about central bank tightening amid still sky-high inflation in the US, Europe and elsewhere, 2) worries about slowing global growth and continued inflationary risks emanating from the Russo-Ukraine war and lockdowns in China.

But “oil markets do look like they have more room to fall in the shorter term,” said a senior market analyst at OANDA on Tuesday, a sentiment shared by many other analysts. They cite the ongoing risks to Russian oil output posed by Western sanctions in response to the invasion of Ukraine.

EU 27 nations have not yet been able to agree on a plan for ending Russian oil purchases, with Hungary particularly reluctant to sign up to the embargo and some said this might also have weighed on crude prices this week. But various high-level EU officials/leaders, including European Commission President Ursula von der Leyen and French President Emmanuel Macron, have been in contact with Hungarian President Viktor Orban in recent days to try and get him on board.

French European Affairs Minister Clement Beaune said earlier on Tuesday that EU nations could reach a deal on the next round of Russian oil sanctions this week. Meanwhile, Japan has also said it will phase out Russian oil purchases.

Looking ahead, US crude oil inventory data will be in focus later in the day with the release of the weekly private API report at 2130BST, which are likely to show a fall in crude oil stocks according to a Reuters poll of analysts released on Monday. This might lend further support to WTI.

On Wednesday, focus will return to the global macro mood and how it reacts to the release of the April US Consumer Price Inflation report, which is expected to show a slight moderation in the pace of headline YoY price inflation. If confirmed, this could support sentiment by easing fears about Fed tightening, supporting a higher oil price.

Many traders will probably be eyeing a retest of earlier weekly highs above $110.00 later in the week should risk appetite hold up and the EU reach a deal on its proposed Russian oil embargo. But China lockdowns remain a key downside for traders to keep an eye on.