WTI recovers after brief dip back below $100 as positive Russo-Ukraine updates spark volatility

Oil prices have seen rollercoaster price action on Tuesday. Front-month WTI futures currently trade in the $102.00s, slightly below the mid-point of the day’s near-$10 per barrel $98.50-$107.80ish ranges. On the week, WTI’s losses currently stand at more than $10, with the major bearish news having come out of China, where the Covid-19 outbreak continues to spread and authorities continue to try and stamp it out as per their so-called “dynamic zero Covid strategy”. Shanghai was the latest place to go into strict lockdown as infections in the city surge and this is a major theme playing on the mind of global oil market participants, given China’s status as both a major consumer and massive importer of the black gold.

But the major catalyst behind more recent volatility on Tuesday, i.e. the reason WTI slumped nearly $10 from session highs in within the space of about one hour, has been recent positive Russo-Ukraine updates. Peace talks have wrapped up and were framed as constructive by both sides, with the Ukrainians making a new security proposal to the Russians and hinting towards a possible Presidential meeting between the two sides. Meanwhile, the Russian Defense Ministry said it was scaling down military activities around northern Ukrainian cities in order to foster more conducive conditions for negotiations.

Moving forward, while WTI clearly remains vulnerable to both China lockdown and Russo-Ukraine peace talk progress-related headlines, a few factors may help underpin things. Firstly, Western leaders have said that a Russo-Ukraine peace deal does not mean an immediate end to sanctions, meaning that severe disruptions to Russian oil exports likely won’t ease any time soon, regardless of developments in Ukraine. Secondly, recent commentary from OPEC members suggests a more significant boost to output will not be forthcoming. The oil rollercoaster is likely to continue, but it remains far too early to bet on a return back to pre-Russo-Ukraine war levels under $90.00.