The political news situation will determine whether the price of Brent oil stays around $70 per barrel, which it has been for the last two weeks, according to Commerzbank AG.
Whether the US proposal for a 30-day ceasefire in Ukraine can be developed further in the talks that Russian President Vladimir Putin is now seeking with US President Donald Trump will likely be a key factor.
“If no solution is found, sanctions against Russia could be tightened,” Barbara Lambrecht, commodity analyst at Commerzbank said in a report.
The implementation of stricter sanctions at the beginning of the year had a significant impact on the global oil market, causing a sharp increase in oil prices.
These sanctions were primarily aimed at curbing Russia’s oil exports, which are a major source of global oil supply.
Initially, the sanctions were successful in disrupting Russia’s oil exports, leading to a decrease in supply and a subsequent rise in prices.
However, over time, Russia was able to adapt and find alternative ways to export its oil.
This included finding new buyers, using different shipping routes, and offering discounts to attract customers.
Russian supply flows uninterrupted
As a result, Russia’s oil exports have rebounded considerably, mitigating the initial impact of the sanctions on the global oil market.
This recovery in Russian oil exports has helped to stabilize oil prices and reduce the risk of supply shortages.
“In any case, it should be noted that the numerous sanctions against the Russian oil industry have not had a lasting impact on supply.
However, further sanctions are still on the cards,” Lambrecht added.
Source: Commerzbank Research
The Supreme Leader Khamenei’s renewed rejection of talks on the nuclear program could lead to a hardening of US attitude towards Iran.
In 2018-2019, Iranian oil exports fell sharply as a result of sanctions during Trump’s first term as the American president.
But, Iranian oil exports had since rebounded during the last US President Joe Biden’s term at the White House.
The Biden administration did not pursue tougher implementation of sanctions against Tehran’s oil exports.
Meanwhile, energy agencies have significantly downgraded their forecasts for oil production coming out of Venezuela.
This downward revision is primarily attributed to the impact of the newly imposed US sanctions, which have severely hampered Venezuela’s ability to export its oil and invest in its energy sector.
“In addition to sanctions policy, erratic tariff policy is adding to uncertainty, which is particularly worrying for energy companies in North America,” Lambrecht said.
Oil oversupply projections
The US Energy Information Administration in its monthly report reduced its forecast for this year’s oversupply to 100,000 barrels per day from the previous 500,000 barrels per day.
The reason for the downward revision is a tighter market in the short term due to lower production in Venezuela and Iran, according to Commerzbank.
The EIA has adjusted its oil price forecast upward due to a less oversupplied market, leading to a slight increase in projected US crude oil production.
This forecast already considers the planned gradual increase in OPEC+ production starting in April.
Carsten Fritsch, commodity analyst at Commerzbank, said:
However, the significant increase in US oil production envisaged by the US government has yet to materialise, which means that oil prices are not high enough.
Additionally, the International Energy Agency has estimated that oversupply in the market would be 600,000 barrels per day in 2025.
The oversupply of oil would further increase by 400,000 barrels per day if the Organization of the Petroleum Exporting Countries and its allies increase oil production as planned from April onward and if the current overproduction by some countries remains uncompensated.
Oil demand
Besides political developments, which mainly impact the supply side, the demand outlook for oil is also significant.
China’s crude oil stockpiles saw a slight dip in the first two months of the year due to increased refinery processing and sustained weak imports, according to reports.
The first two months of this year saw a decline in China’s crude oil imports compared to the same period last year.
China, the world’s largest crude importer, imported 10.37 million barrels per day (bpd) in the first two months of the year and produced 4.34 million bpd domestically, according to a Reuters report.
The drop in imports was likely due to two main factors. First, refiners reduced their intake of Russian crude shipments after US President Biden’s mid-January sanctions on tankers transporting Russian oil, according to the report.
Lambrecht said:
In addition, the economic development in the US, by far the most important sales market, threatens to weigh on prices.
Market sentiment and the recovery of oil prices are threatened by new US economic indicators and recession worries, which could also appear at the Federal Reserve meeting.
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