Oil Dips On Russia/Ukraine Ceasefire Breakthrough - But Market Uncertainty Peaks

Meanwhile, Trump's pressure on Venezuela spooks China: File Image/Pixabay

A breakthrough in the Russia/Ukraine ceasefire negotiations and therefor a de-escalation of geopolitical risk resulted in oil prices on Tuesday declining, albeit minimally, and with a host of other considerations continuing to muddy trading waters.

As of 1714 GMT, Brent dipped 15 cents to $72.85 per barrel, and West Texas Intermediate fell 25 cents to $68.86.

Ukraine president Volodymyr Zelenskiy agreed to a truce with Russia covering the Black Sea and energy infrastructure, with the ceasefire effective immediately and bolstering expectations that Russian crude would soon flow freely due to an easing of sanctions against the former Soviet Union.

Washington reportedly appeared to signal its intention to ease sanctions on Russian fertilizer and agricultural goods and improve Moscow’s access to maritime insurance, ports and payment systems.

Bloomberg noted that “The developments walked back some gains on news of [U.S. president] Donald Trump’s plan to hit buyers of Venezuelan oil with 25 percent tariffs, a move that would complicate business for refiners in China, India, and Western Europe.”

According to shipping data, loading of Venezuela's heavy crude at its main oil ports slowed this week, and the termination of Chevron’s license to operate in that country reduced the number of vessels chartered by the company.

Also, trading sources told media that traders and refiners in China were caught off guard by Trump’s executive order that that trade with Venezuela had stalled on Tuesday: “The worst thing in the oil market is uncertainty: we won't dare touch the oil for now,” said a senior executive at a Chinese trader of Venezuelan oil.

Also on Tuesday, India’s state-owned Oil and Natural Gas Corporation Limited told media that in reaction to what it perceives to be a looming crude supply glut, it plans to diversify in refining, petrochemicals, LNG trading, and renewable energy in the near future.

Arunangshu Sarkar, director for strategy at ONGC, told Bloomberg, “It will be difficult for a company like ONGC to survive in a low oil-price regime and the new businesses provide a hedge for such a scenario.”