Oil Down As Analysts Bet On Peace Talks' Potential To Boost Global Glut

But Rystad Energy believes the market is actually quite tight: File Image/Pixabay

Although political pundits doubt that U.S. president Donald Trump's recent meetings with Russian president Vladimir Putin and Ukraine president Volodymyr Zelensky would result in peace between the two countries, oil traders gambled that they would – and caused crude on Tuesday to incur modest losses.

Brent settled down 81 cents at $65.79 per barrel, and West Texas Intermediate settled down $1.07 at $62.35 per barrel.

The expectation of the Russia/Ukraine situation is that if a peace deal were reached, the U.S. and Europe would ease sanctions against the former Soviet Union, boosting global supply at a time when many analysts are convinced a glut is on the horizon and demand is waning.

Phil Flynn, senior market analyst with Price Futures Group Inc., said, "Even with this peace dividend, we have a record short position…Because of the size of the short position, people are betting on a cease-fire and if we don't get one there could be a bounce."

According to a new Rystad Energy report, Brent oil prices have shifted very little in recent weeks; and Mukesh Sahdev, Rystad's senior vice president, chief oil analyst, pointed out, "The probability of the U.S. placing stronger sanctions on Russia is waning, with the market expecting Russian oil trade to make a comeback as a result of the peace talks — yet this sentiment masks emerging signals toward upside."

Sahdev went on to explain that "Rystad Energy analysis of storage fundamentals, particularly as China's stockpiling continues with 10 percent higher imports than needed, indicates that oil prices are unlikely to tank to level of $60 /bbl and stay there for long."

Sahdev added, "The prompt time spreads between Brent and WTI continue to signal a tighter market... overall, our view is that backwardation will continue to roll and it's not time to stay short for long; the path to peace is likely to be non-linear."

In other oil news on Tuesday, analysts with knowledge of the matter told media that refineries in China purchased 15 cargoes of crude from Russia for October and November delivery, while demand in India for Moscow's exports has withered in the face of U.S. sanction threats.

According to Energy Aspects, Indian state refiners have turned down Russian crude imports to the tune of approximately 600,000 to 700,000 barrels per day.