Oil continued to decline and is approaching the level before the Russian invasion of Ukraine

Oil prices continued to fall on Wednesday and are approaching pre-Russian invasion levels of Ukraine, weighed down by fears of a drop in demand for black gold and optimism about ongoing deals between Moscow and Kiev.

At the end of a very volatile day, the North Sea barrel of Brent for delivery in May lost 1.89% to $98.02.

Meanwhile, the West Texas Intermediate (WTI) for April fell 1.49% to $95.04.

The two benchmark barrels are thus below $100 and close to their pre-invasion levels at the end of February and the subsequent Western sanctions against Moscow that brought black gold close to its all-time highs.

“These movements are due to the hopes and expectations arising from the Russia-Ukraine negotiations,” summarized Matt Smith, Kpler's head of oil analysis.

New talks between Kiev and Moscow were described by Ukrainian President Volodimir Zelensky as “more realistic”, although Russia continues to make progress on the ground.

Kremlin spokesman Dmitri Peskov said Wednesday that negotiators are discussing “a compromise” that would make Ukraine a neutral country on the model of Sweden or Austria.

- “Prudence” -

Given the decline in prices, “investors seem to place a lot of emphasis on these neutrality plans, although I would advise extreme caution on this issue,” warned analyst Smith.

According to this specialist, crude oil prices will rise again due to a lack of supply.

“In theory, there will be a lack of supply in the next two weeks,” he said.

The International Energy Agency (IEA) said on Wednesday that it fears a strong “impact” on world oil supply as a result of sanctions against Russia over the invasion of Ukraine, and estimated that Russian oil cannot be replaced immediately.

Russia is the second largest exporter of crude oil in the world.

For Stephen Brennock, from PVM Energy, there are other factors that drag oil, such as “the fears linked to covid-19 that return” or “hopes that an agreement will be reached in the negotiations on Iranian nuclear (agreement)”.

China is facing its largest outbreak of covid since 2020 and a sanitary lockdown is in place in several cities, a measure that raises fears because of its impact on Chinese economic growth and the demand for black gold.

Obstacles to the reinstatement of the agreement on the Iranian nuclear programme seem to be dispelling.

The United States considers that a settlement is “close”. This conclusion would lead to the lifting of sanctions against Iran, a founding member of OPEC, and would allow it to fully recover its export capacity.

The data on oil stocks in the United States did not affect the market.

Commercial crude oil reserves in the United States increased sharply last week, contrary to market expectations, although gasoline reserves fell, according to figures released Wednesday by the US Energy Information Agency (EIA).

In the week ending March 11, US crude reserves grew 4.3 million barrels (mb) to 415.9 mb, while analysts expected a decline of 1.8 mb.

Gasoline reserves, meanwhile, fell more than expected, by 3.6 mb, while analysts expected a drop of 1.4 mb.

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