Oil Nosedives By Over 17% As Ukraine Signals It Is Willing To Compromise With Russia

Still, Russia  promising to retaliate against the U.S. import ban is cause for concern: file image/Pixabay

The sudden notion of diplomacy being introduced in the brutal invasion of Ukraine by Russia resulted in crude futures on Wednesday plummeting over 17 percent, much to the relief of politicians seeking any respite from high prices at the pump.

Ukrainian president Volodymyr Zelenskiy's reported willingness to consider some compromises to end the war with Russia caused West Texas Intermediate to drop $15 to settle at $108.70 per barrel; Brent fell $16.84 to settle at $111.14 per barrel.

Scott Shelton, energy specialist at ICAP North America Inc., said, "The market has not lost an overwhelming amount of oil just yet, its pricing a risk premium that the amount of oil lost is going to be significant and force demand destruction.

"As long as diplomacy wins out in the next few weeks, I think its safe to say prices should come down more."

Other factors on Wednesday suggested that traders' reaction to the Russian/Ukraine conflict may have been overheated: Ihsan Abdul Jabbar Ismaael, oil minister for Iraq, said his country hasn't seen extra demand from oil customers and that there was no need for the Organization of the Petroleum Exporting Countries (OPEC) to ramp up production.

This view was predictably shared by Mohammad Barkindo, secretary general of OPEC: he told  media that there's "no physical shortage of oil, as of this morning."

Also, the White House delayed a vote on legislation to ban Russian oil imports, and Keshav Lohiya, founder of consultant Oilytics, theorized that "The market is awaiting the domino effect of mainland Europe announcing a ban, however, with oil majors announcing that they won't touch Russian oil, there is already a de-facto ban."

Still, Amrita Sen, director of research at Energy Aspects, maintained her view that prices for the key benchmarks could easily top $150 per barrel in the near future, although she conceded that trading trajectory was unclear due to the prospect of demand destruction: "Unlike in the past it isn't just oil that's rising - there are other factors that are really pushing consumers to spend less."

But if nothing else, for the first time in several weeks geopolitical circumstances seem to have been assessed somewhat more rationally: Melissa Brown, managing director of applied research at Qontigo, on Wednesday remarked that "Most conflicts have not had a lasting impact on equity markets: share prices tend to rise after a period and even become less volatile."

Meanwhile, a possible influence on oil trading in the near future could be delivered by Russia, which on Wednesday accused the U.S. of declaring an economic war on the former Soviet Union and warned it was considering a response to the proposed import ban.