Meanwhile, Saudi Arabia's oil price hike is backfiring: File Image/Pixabay
The roller coaster oil market ended in another price dip for the commodity on Tuesday, with bullish sentiment over a new round of sanctions against Russia for its alleged war crimes in Ukraine offset by a stronger U.S. dollar.
West Texas Intermediate settled down $1.32 at $101.96 per barrel and Brent settled down 89 cents to $106.64 after a tumultuous session of trading that saw gains in the wake of the U.S., European Union, and G-7 nations agreeing to increase sanctions on Russian financial institutions and state-owned enterprises.
Ursula von der Leyen, president of the European Commission, added, "We will impose an import ban on coal from Russia, worth 4 billion euros [$4.39 billion] per year; this will cut another important revenue source for Russia."
Ryan Fitzmaurice, commodities strategist, Rabobank
U.S. dollar strength likely contributed to late day sell-off
However, a stronger dollar (its highest since May 2020) makes oil priced in the currency less attractive, and Ryan Fitzmaurice, a commodities strategist at Rabobank, said the "U.S. dollar strength likely contributed to late day sell-off."
The new sanctions were also said to have the potential to impact the effect of the release from the U.S. Strategic Petroleum Reserves (SPR) beginning in May: Scott Shelton, an energy specialist at TP ICAP Group Plc, noted that "Many who were long oil got out in the last week or so on the basis that the SPR was just too much for the market to handle without some real evidence of dropping Russian crude exports."
Meanwhile, trading of Brent Blend indicates that the initial price shock caused by the Russia/Ukraine war is wearing off, according to Bloomberg: a cargo of Brent Blend oil traded at a premium of 90 cents per barrel to Dated Brent; two weeks earlier, a trader was looking to purchase the same grade at $5.55 above Dated Brent, without finding any sellers.
Plus, contracts for difference (swaps that help price North Sea oil from one week to the next) were reportedly trading in backwardation of a little more than $1 on Monday, compared with almost $6 two weeks ago
Also on Tuesday, and despite the turmoil geopolitics has caused the market, it seems Saudi Arabia's decision to hike its oil prices to record levels may have backfired: Asian buyers reportedly will likely purchase more U.S. and Middle Eastern crude on the spot market and take less contracted supplies from the kingdom, thanks to crude becoming cheaper after the U.S. announced its latest SPR release.
Additionally, China's Covid outbreak combined with continued flows of Russian crude to Asia has pushed down premiums for Middle Eastern oil.