Oil Prices Mixed Amid Muddled Outlook And Germany Nixing Russian Oil

Babin says tight supplies are no longer motivating traders: File Image/Pixabay

Germany announcing a ban on Russian oil amid conflicting analyses of the state of the global crude market was enough for traders on Wednesday to give one key benchmark a modest price boost – but volatility isn't about to disappear any time soon, warn experts.

West Texas Intermediate for May delivery, which expired Wednesday, rose 19 cents to settle at $102.75; the more active June contract rose 14 cents to $102.19 per barrel.

Brent dropped 45 cents to $106.80 per barrel.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, said,
"Price action tells us two things: first, macro traders are firmly in control of crude markets at the moment; secondly, that the narrative of tight physical markets is stale and may not be able to induce momentum to the upside in the near term."

Annalena Baerbock, Germany's foreign minister, said her country will stop importing oil from Russia by the end of the year, with natural gas soon to follow; the news came on the heels of the U.S. reporting a drop in crude stockpiles of 8.02 million barrels last week, the biggest draw since January 2021.

While these factors combined with Russia's oil output declining in April stoked bullish fears of an overall supply shortage, the outlook of traders was muddled by a downgraded growth forecast from the International Monetary Fund and recent hawkish comments from the U.S. central bank.

Also muddled is any clear analysis of the impact of the sanctions against Russia for invading Ukraine: the former Soviet Union to date is benefiting from trade with India, which on Wednesday was reported to be doubling down on its oil purchases and snapping up every major grade via privately negotiated deals.

Moreover, as countries globally scramble to replace Russian supplies, the U.S. benefited from the situation by exporting the most oil and petroleum products in history last week (10.6 million barrels per day), according to the Energy Information Administration.

Matt Smith, oil analyst at Kpler, remarked, "Strong exports have been driven by a pull to Europe and we should expect strength in the weeks ahead."

However, the latest sign that the sanctions may be causing major disruptions within Russia came on Wednesday with the report that the country's state oil producer, Rosneft, surprised European and Asian traders with offers to sell large amounts of crude at speed, as well as setting out significant changes to the payment process for some of the transactions.

According to tender documents, Rosneft offered as much as 37.4 million barrels of Urals oil for sale for loading in May and June, which amounts to about 40 percent of its daily seaborne exports of the crude last year.

Meanwhile, Stephen Greenock, analyst at P.M., echoed the concerns of many colleagues by discussing something that is sure to affect oil trading in the days and weeks ahead.

On Wednesday he said, "Weakening growth and mounting inflationary pressure can only mean one thing: the spectre of stagflation is hanging over the global economy."