Peace Talks And Fed Expectations Remain Key Trading Drivers As Oil Prices Dip

Meanwhile, Shell grows closer to expanding capacity in the U.S. Gulf: File Image/Pixabay

With Brent and West Texas Intermediate declining by about 0.2 percent to $58.76 and $62.39 per barrel respectively, oil trading on Tuesday was influenced by the same analytical focus on two key issues: the Russia/Ukraine peace talks and an expected rate cut by the U.S. Federal Reserve.

Additionally, pundits kept the momentum of concerns about a global oversupply front and center: Ahmad Assiri, a market strategist at Pepperstone, stated in a note, "Much of the current discussion still revolves around short-term volatility and potential risk of geopolitics, yet the deeper signals are becoming harder to overlook.

"The coming year looks set to be one where physical fundamentals nudge the market toward a repricing of expectations."

Bjarne Schieldrop, chief commodities analyst at SEB AB, was equally glum, and he said of a rising volume of crude crossing oceans, "Eventually, the current huge blob of oil at sea will move onshore where the sensation of rising crude oil stocks will be more tangible."

He added, "The only reason why Brent crude hasn't fallen faster and deeper is because of the U.S. sanctions related to Rosneft and Lukoil."

The peace talks continued on Tuesday, and spirits were said to be buoyed by a  U.S. national security strategy document that spoke of Washington's desire to improve relations with Russia – and of which Kremlin spokesman Dmitry Peskov said, "The nuances that we see in the new concept certainly look appealing to us."

As for the Fed, it will reveal its decision about a rate cut when it meets to discuss the matter on Wednesday.

In other oil news on Tuesday, sources familiar with the matter told media that Shell is in advanced talks to buy Louisiana-based LLOG Exploration Offshore in a deal worth more than U.S.$3 billion, with the closing of the deal possibly occurring by the end of this year.

Shell is already one of the largest energy producers in the U.S. Gulf, and while LLOG produces around 30,000 barrels of oil equivalent per day, production is expected to grow considerably by the end of the decade.

Also on Tuesday, and sure to influence trading in the next session,
the American Petroleum Institute estimated that U.S. crude inventories experienced a massive draw of 4.8 million barrels in the week ending December 5; however, gasoline inventories saw a sizeable increase of 7 million barrels during the same time frame.