Oil prices rise due to dwindling hopes for peace in Ukraine – Commerzbank

Oil prices rose last week and also started the new trading week on a bullish note. Brent rose to $69 per barrel and WTI to $65 per barrel. In addition to an unexpectedly sharp decline in US crude Oil inventories, speculation about interest rate cuts and the resulting weaker US dollar provided support. In addition, hopes for an upcoming end to the war in Ukraine are fading, making an easing of sanctions less likely and potentially leading to tougher sanctions against Russia. A meeting between the presidents of the two warring parties, Putin and Zelensky, which seemed possible a week ago, has become less likely due to statements from Russia, Commerzbank's commodity analyst Carsten Fritsch notes.

Risks to Oil supplies due to the ongoing war are manifold

"The mutual attacks between Russia and Ukraine, however, continue. Ukraine has increasingly targeted Russian energy infrastructure. Last week, the Druzhba Oil pipeline was repeatedly targeted by Ukrainian drone attacks, interrupting the flow of Russian Oil to Hungary and Slovakia. A large Oil refinery in southern Russia, which produces Oil products for export, was also attacked. Over the weekend, there was a drone attack on an important Russian export port near St. Petersburg on the Baltic Sea, where Oil products are also refined and exported. In addition, the pumping station on the Druzhba pipeline that was hit is also needed to transport Oil to the attacked Baltic Sea port."

"It can be assumed that Russia's export capabilities have been curtailed by the recent attacks, meaning that less Oil from Russia is likely to reach the world market. Even before the latest attacks, Russia's seaborne Oil exports had fallen to their lowest level in almost six months on a four-week average, according to Bloomberg data (Figure 1). However, no decline in exports via Baltic Sea ports has been observed yet. By contrast, Oil exports on the Pacific coast declined, which could be due to weather conditions or the impending US punitive tariffs against India, even though this is not yet reflected in Bloomberg's figures for deliveries to India. Bloomberg will publish last week's export data later today."

"Oil from Kazakhstan could also be cut off from the world market due to the hostilities, as the energy infrastructure in Russia is needed for its export. However, according to the Kazakh Energy Ministry, Oil exports from Kazakhstan via the affected terminal have not been affected so far. Another sore point needs to be considered in this context: Russia could block the transit and export of Kazakh Oil via its territory in the event of tougher Oil sanctions against itself or its customers. The risks to Oil supplies due to the ongoing war are therefore manifold. The price increase observed over the past week is therefore justified."