The price of West Texas Intermediate (WTI) — the primary benchmark for US crude — fell to as low as $56 a barrel during Asian trading on Thursday. The decrease in WTI oil prices is being driven mainly by a new wave of optimism that Russia and Ukraine may be nearing a peace agreement. If the relationship thaws, Russian oil exports would find their way more easily into the global market. This would create additional supply when oil markets are already flush, driving down prices. Investors are responding to the potential that sanctions and disruptions related to the war could be lifted sooner than anticipated.
Tensions Over Venezuela Aid in Containing Losses
Although oil prices are plummeting, the downside seems to be limited at this point. The United States has said it will move to seize oil tankers tied to Venezuela. That could cut oil shipments from the country, and tighten supply. Venezuela has directed its navy to escort oil ships in return and this carries the potential for political friction. These developments are why traders remain cautious and if a shock event along the supply chain does occur, market action could be fierce.
Support Seen From Reduced US Stocks
Helping to keep oil prices buoyant is a decline in US crude stocks. Government data revealed that oil stockpiles dropped more than expected last week, suggesting demand is still holding up. Generally, lower stock levels indicate that consumers and businesses are continuing to consume large quantities of the fuel. Hopes for peace in Eastern Europe are weighing on prices, but less-than-robust inventories and supply risks elsewhere are preventing an even steeper descent. Geopolitical news and supply developments continue to affect the oil markets as a whole.
