Crude oil poised for significant weekly decrease due to implementation of American tariffs and looming deadline for Russian ceasefire
The upcoming meeting between the sitting US President and Russian President, scheduled for next week, marks the first such encounter since Joe Biden met Mr Putin in Geneva in June 2021. This meeting has created expectations of a potential ceasefire in the Ukraine war, which could have significant implications for global oil markets.
The recent decline in Brent and WTI crude prices ahead of the Alaska summit could be a reflection of these expectations. Oil prices have slipped by around 0.2% to 1% in early trading due to cautious market sentiment and hopes for peace that could ease supply constraints.
If the peace talks succeed and sanctions on Russian oil exports are eased, the increase in global supply could further pressure prices downward. Conversely, analysts warn that a breakdown in talks or failure to reach a ceasefire could cause prices to rise sharply, as the conflict continues to disrupt supply and market uncertainties persist.
Over the past few months, OPEC+, led by Saudi Arabia and Russia, has been gradually restoring 2.2 million barrels a day of supply that was withheld during the Covid-19 pandemic. This is the sixth month in a row that OPEC+ has raised its oil output, with the organisation announcing a larger-than-expected increase of 548,000 barrels a day for August, and another increase of 547,000 barrels per day for September.
However, the latest round of US tariffs has been driving oil price movement this week, according to Giovanni Staunovo, a strategist at Swiss bank UBS. The added tariffs on buyers of Russian oil came in at 25%, not the feared 50% or 100%.
Year-to-date, both Brent and WTI are down 10.5%. Despite the recent decline, West Texas Intermediate, the gauge that tracks US crude, increased 0.58% to $64.25 a barrel on Friday. Brent, the benchmark for two thirds of the world's oil, rose 0.65% to $66.86 per barrel on Friday.
The geopolitical context surrounding these talks is complex. US President Donald Trump has indicated that failure by Putin to agree to a ceasefire will result in "very severe consequences," suggesting continued sanctions or other measures that could restrict Russian oil exports and support higher prices if talks fail. British Prime Minister Keir Starmer and European leaders are prepared to implement military support and security guarantees for Ukraine contingent on ceasefire progress, underscoring ongoing uncertainty impacting investor risk appetite.
In summary, the potential impact on oil prices hinges largely on the outcome of the talks: a ceasefire could lead to lower prices through resumed Russian oil flows, while failed talks likely boost prices due to increased geopolitical risk and supply disruptions.
- The Ukraine war and the pending meeting between US and Russian Presidents could significantly affect global oil markets, as expectations of a potential ceasefire may impact Brent and WTI crude prices.
- If peace talks are successful and sanctions on Russian oil exports are eased, the increase in global supply could further pressure prices downward, potentially leading to a decline of around 10.5% year-to-date for both Brent and WTI.
- On the contrary, a breakdown in talks or failure to reach a ceasefire could cause prices to rise sharply, as the conflict continues to disrupt supply and market uncertainties persist.
- Over the past few months, OPEC+, led by Saudi Arabia and Russia, has been gradually restoring 2.2 million barrels a day of supply withheld during the Covid-19 pandemic.
- The latest round of US tariffs has been influencing oil price movements this week, with added tariffs on buyers of Russian oil amounting to 25%.
- The upcoming crisis between Iran, Israel, and Saudi Arabia, together with the ongoing tension between Israel and the UAE, adds another layer of complexity to the geopolitical context surrounding these talks, affecting investor risk appetite.
- The world economy, energy industry, businesses, and finance sectors will closely watch the oil-and-gas market for updates on these geopolitical developments, as they have the potential to impact global energy supplies and market stability.
