WTI well supported in $95.00s though off highs as traders fret about potential Russia supply disruptions

Though oil prices have backed off from earlier highs as markets await the outcome of Ukraine/Russia talks and traders hope (though don’t expect) that a ceasefire might materialise, front-month WTI futures remain well underpinned in the $95.00s. At current levels in the $96.00s, WTI is trading with on-the-day gains of over 4.0% or more than $3.50, amid fears that the raft of new sanctions announced by Western nations on Russia over the weekend might disrupt global energy flows.

Under new sanctions announced over the weekend, various Russian banks will be kicked out of SWIFT, the CBR’s access to international FX reserves has been curtailed and Russian planes are banned from EU airspace. Moreover, the EU will also begin sending lethal military aid to support Ukraine and Germany and Western companies are beginning to divest from the country on mass. Whilst Western sanctions don’t directly target Russian energy exports, there is a fear that Russia might retaliate to Western sanctions by reducing or completely halting energy exports to Europe.

Traders are subsequently becoming more bullish on crude oil moving forward. Goldman Sachs has upped their one-month forecast for Brent crude (current around $x per barrel) to $115. Analysts have said that, as OPEC+ and other producers struggle to up supply, the only major downside catalyst for oil at this juncture is the prospect of demand destruction as a result of high energy price-induced economic weakness.

On which note, the group of energy-producing nations on Monday revised their forecast for an oil market surplus in 2022 to 1.1M barrels per day (BPD) from 1.3M BPD previously, indicative of expectations for an ever-tighter market. OPEC+ meets on Wednesday and is expected to agree to increase output quotas by a further 400K BPD in April, a continuation of their recent policy of hiking output.