WTI drops and pops on Ukraine & Russian ceasefire sentiment turnaround

• Two-way price action in energy markets following peace talk headlines between Russia and Ukraine.
• WTI falls on the prospects of a cease-fire but rallies due to sceptism.

West Texas Intermediate (WTI) crude oil prices were starting out on the back foot again but managed to stage a recovery from below the US$100 level at the $98.54 spot following traction in Russian & Ukraine peace talks. Russia said it will reduce military activity around the Ukrainian cities of Kyiv and Chernihiv. 

Spot WTI crude oil rallied to a high of $107.81 while for May delivery, the futures closed down US$1.72 to settle at US$104.24 per barrel after earlier touching US$98.44. May Brent crude, the global benchmark, was last seen down US$2.15 to US$110.33.

The moves in oil prices were counterintuitive to the prospect that a ceasefire could be around the corner. Russia indicated the talks could pave the way for a meeting between Russian President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelensky. However, this initially saw Brent crude fall to USD106/bbl, down from USD120/bbl last week.

Coldwater, however, was poured over the good news by US Secretary of State Antony Blinken who expressed scepticism about Russia’s promise to de-escalate its military operations around Kyiv. ''The market is also grappling with the impact of lockdowns in China which are weighing on crude oil demand. A sharp slowdown in mobility in Shanghai, which accounts for 4% of China’s oil consumption, could lower overall consumption in China,'' analysts at ANZ Bank said. 

''OPEC members continued to strike a cautious tone ahead of this week’s meeting. Saudi Arabia and UAE have suggested it doesn’t see the need to accelerate output increases, with several ministers highlighting how their production strategy has stabilised the oil market.''

Meanwhile, with regards to the peace talks, analysts at TD securities said, ''while these factors certainly tame some of the bullish factors present in the crude market, they are unlikely to completely undo the vast array of supply risks that come with self-sanctioning and extremely stretched spare capacity. ..

''Furthermore,'' the analysts added, ''China's zero-Covid strategy may once again translate into a short-lived but sharp hit to mobility, which could in turn boost prices as demand recovers in the aftermath. Despite the knee-jerk correction, the set-up is still ripe for higher energy prices.''