Oil Falls, What Is the Market Really Afraid Of?
Global oil prices remain stuck in a bearish zone as market participants weigh the chances of an end to the Russia-Ukraine war following a summit between the US and Russia. WTI traded below $59 per barrel after falling about 1.2% on Tuesday, while Brent closed near $62.45 per barrel, down about 1.1%. The Kremlin called President Vladimir Putin's meeting with US envoys Steve Witkoff and Jared Kushner "very useful," but said it had not yet resulted in a peace agreement.
Meanwhile, attacks on Russian energy assets continue, including the latest attack on a Russian-linked vessel, although the perpetrators remain unclear. Putin warned that Russia could consider attacking ships belonging to countries supporting Ukraine if attacks on Russian fleets do not stop. Analysts expressed surprise that Brent prices have not risen higher given the repeated attacks on Russian energy infrastructure, but the market is now more focused on the buildup of oil stocks.
These geopolitical tensions have kept the market on edge and added a "risk premium" to oil prices, partially offsetting concerns about oversupply. Sentiment was also worsened by the US's tough stance on Venezuela, after President Donald Trump hinted that the Pentagon could soon target drug cartels with a ground offensive. This situation adds a new layer of risk to the global energy market.
From a fundamental perspective, industry data showed that US crude oil inventories rose by about 2.5 million barrels in the past week, and gasoline stocks also increased. This increase in inventories has raised concerns that supply could become oversupplied if demand weakens. Ahead of the official government data release on Wednesday, the January WTI contract was trading around $58.65 per barrel at 8:35 a.m. Singapore time, as market participants continued to weigh geopolitical risks and the growing stockpile data.
Source: Bloomberg.com
