Oil Treads Further Into Bear Territory As Russia/Ukraine Talks Seem To Hold Promise

But continued war could cause "global oil supply shock, says the IEA: File Image/Pixabay

A surprise increase in U.S. crude stockpiles plus possible progress in Russia/Ukraine ceasefire talks were the reasons for oil's ongoing price declines on Wednesday, as the commodity ventured further into a bear market.

West Texas Intermediate settled down $1.40 at $95.04 per barrel and Brent settled down $1.89 at $98.02 per barrel after Russia's chief negotiator, Vladimir Medinsky, reported "some progress" in the negotiations but warned that a few issues remain unresolved.

Russia's foreign minister Sergei Lavrov added that there's hope of reaching an agreement with Ukraine.

The International Energy Agency pointed out that should the war between the two countries continue, 3 million barrels per day (bpd) of Russian oil and products may not find their way to market beginning in April.

The Paris-based agency stated in its monthly oil report released Wednesday, "The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock," and it added that this could ultimately be the "biggest supply crisis in decades."

The IEA cut its demand forecast by 1.3 million bpd across the second, third and fourth quarters of this year and now views total 2022 demand at 99.7 million bpd, up 2.1 million bpd from 2021's levels.

Meanwhile in the U.S., inventories rose by 4.3 million barrels against expectations for a loss, while stocks at the Cushing, Oklahoma, hub increased as well – which was perceived as good news in light of concerns over a tight market.

As for crude trading in the immediate future, Robert Yawger, director of energy futures at Mizuho, remarked, "Moving forward from here we're looking for headlines on negotiations in Russia, a cease-fire or withdrawal, or the spread of Covid in China."

Yawger was referring to lockdowns required under China's zero-tolerance Covid policy, and in assessing the situation UBS stated that "Renewed pandemic-related lockdowns in China, including the 17 million people in the nation's southern tech hub of Shenzhen, also have the potential to reduce oil demand in the near term."

Richard Gorry, managing director of JBC Energy Asia, added, "If we look at China right now, we have 45 million people under lockdown, like it was in 2020 - and we know from history that this does have an impact on oil demand."