WTI rebound to $108 area, with energy markets skeptical of Russo-Ukraine peace progress

• WTI rebounded well on Wednesday and is back to the $108 area with oil markets skeptical on Russo-Ukraine peace progress.
• The Russia/West economic war continues also to ramp up, while oil inventories continue to drop and OPEC+ lifts output slowly.

The price action in crude oil markets over the past two days suggests that energy investors are not buying into optimism that has emerged this week regarding Russo-Ukraine peace talks. Russia has acknowledged that Ukraine has met its core request in pledging not to join NATO and on Tuesday announced plans to scale down military operations around Kyiv and northern Ukrainian city Chernihiv to foster better negotiating conditions.

That announcement, which came after Tuesday’s constructive talks between the two sides in Turkey, sent front-month WTI future momentarily below $100 per barrel on Tuesday. But as attacks by Russian forces across Ukraine have continued and President Zelenskyy and the Ukrainian Defense Ministry have warned of fresh troop build-ups, ceasefire hopes have diminished and WTI has made significant progress in rebounding towards $110.

At current levels in the $108.00 area, WTI trades higher by over $3 on the day and nearly $10 higher than Tuesday’s lows. Oil market participants are not just focused on the war in Ukraine, but also the unfolding economic war between Western powers and Russia. The latter camp are announced plans to impose even tougher sanctions on Russia on Wednesday, aimed at targeting the sectors of Russia’s economy critical to the sustaining of the offensive in Ukraine, including military supply chains.

Meanwhile, Russia signaled on Wednesday that it might also soon demand payment in rubles for the export of metals and grains as a 31 March deadline issued by the Russian President for Gazprom to arrange for gas payments in Russia’s domestic currency looms. Authorities across the EU are subsequently now bracing for disruption to gas flows from Russia and this is helping to broadly support the energy complex.

More broadly, amid uncertainties about energy flows out of Russia, expectations for the global oil market to remain very tight for the foreseeable future remain elevated. OPEC+ meet on Thursday and are not expected to do anything to ease this near-term tightness, with sources indicating the group is to stick to its current policy of gradual 400K barrel per day/month hikes to output quotas. OPEC+’s slow and steady approach comes at a time when OECD oil reserves are at historic lows the latest weekly US inventory figures emphasized this; headline crude oil stocks were down a larger than expected 3.45M barrels. WTI did not react to these latest numbers.