Jump to content

Crude Oil Prices May Crash from Highs if Russia, Ukraine Crisis Ebbs


Recommended Posts

CRUDE OIL OUTLOOK:

  • Crude oil prices soar to 14-year high as global markets shun Russian supply
  • All sides of the conflict may be keen for hostilities to end relatively quickly
  • Markets at sentiment extremes may overshoot on the downside as crisis ebbs
Crude Oil Prices May Crash from Highs if Russia, Ukraine Crisis Ebbs
 

Crude oil prices continue to race higher as mounting sanctions against Russia punishing it for the invasion of Ukraine make its vast energy exports inaccessible on global markets. The Eastern giant accounts for just over 13 percent of worldwide crude supply, making it the second-largest producer after the United States.

Headlines tracking the ongoing conflict remain in focus. With Kremlin and Kyiv making little progress in initial talks and Russian forces attempting to press on despite mounting difficulties at home and on the ground, the specter of still-more biting Western countermeasures is keeping supply disruption fears alive.

Dramatic backwardation – reflecting outsized remand for crude deliveries sooner versus later – speaks to potent upward pressure that is unlikely to give way until signs of de-escalation start to appear. As argued previously, parallels between this episode and the 2008 Russo-Georgian War hint this may happen quickly.

CRUDE OIL PRICES MAY CRASH AS RUSSIA-UKRAINE CRISIS EBBS

Moscow’s actions thus far suggest its appetite might be limited to a buffer zone in the breakaway Luhansk and Donetsk regions of eastern Ukraine. Capturing territory beyond these areas may be aimed at having something to trade in the inevitable ceasefire negotiations.

Ukraine’s impressive effort to frustrate the Russian advance, as well as a series of operational miscalculations by the invaders, may have somewhat prolonged hostilities by denying Moscow the strong negotiating position it is likely seeking. The pain from sanctions is mounting however, so time to regroup is running out.

With that in mind, Russian President Vladimir Putin could be searching for a way to disengage in the relatively near term. It may be mutually acceptable for Russia to pull back to its pre-war borders in exchange for Ukraine and Western powers agreeing to discuss the status of Luhansk and Donetsk “later”, at least for now.

Crude oil prices and other commodities buoyed by crisis-driven supply fears – like wheat, corn, nickel, zinc and aluminum – may rapidly retreat if echoes of such a thing begin to circulate. The likelihood that markets overshoot “fair value”, swinging from one sentiment extreme to another, may translate into an eye-watering collapse.

 

CRUDE OIL TECHNICAL ANALYSIS

The WTI contract is testing long-standing range resistance in the 107.68-114.83 zone. Securing a break above this barrier may set the stage for a test above the $120/bbl figure. Neutralizing upward pressure in earnest probably demands retreat back below 95.34, a move breaking the near-term uptrend from early December 2021.

WTI crude oil price chart - weekly

Weekly WTI crude oil price chart created using TradingView

CRUDE OIL TRADING RESOURCES

--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 3rd March 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...