Feb 19, 2025 (Baystreet.ca via COMTEX) --
The start of the U.S.-Russian talks on ending the war in Ukraine adds another bearish geopolitical factor for oil prices this year.
As top U.S. and Russian officials are meeting in Saudi Arabia to discuss the possible end of the war without Ukraine's participation, the market is starting to come around to the potential of eased access to Russian oil supply.
If talks result in a deal and a possible sanctions relief on Moscow's crude oil and petroleum product exports, oil prices will ease by up to $10 per barrel for the Brent benchmark, Bank of America says.
Sanctions Relief?
"Should sanctions relief allow it, we believe Brent crude oil prices could drop between $5 and $10/bbl if Russian barrels suddenly do not need to make a long journey to India or China, and more supply is suddenly made available," analysts at BofA said in a note this week.
A potential sanctions relief could also depress refining margins globally amid higher diesel supply out of Russia, according to the bank.
"Global refining margins could fall as well. While margins have been normalizing since the Ukraine war started, they could go even lower under sanctions relief for diesel," BofA's analysts noted.
Of course, oil prices could shoot up if talks falter or fail and the U.S. ratchets up the sanctions on Russia to try to force a deal.
Bearish Signals Abound
The potential of an agreement to end the war in Ukraine is one of the several bearish factors that market analysts and participants are watching at the start of the year.
The U.S. tariff threats and trade spats, the tariffs already in place, and the possibility of endless tit-for-tat levies could reduce economic growth in major economies, including the U.S. and China. Trade frictions with the on-again, off-again tariff threats have raised uncertainty, and businesses now lack the predictability of stable trade with any country with which America trades.
In January, supply concerns with tightened sanctions on Russia and Iran and falling global stocks boosted an oil price rally, but these bullish signals were overshadowed by early February by concerns about economic and oil demand growth amid the trade and tariff tensions.
By the first week of February, crude oil prices had erased all the gains they had accumulated in 2025.
Market sentiment reverted to caution after President Trump began imposing tariffs and threatening to slap more of these.
In the week to February 11, the latest available data from exchanges, hedge funds and other money managers continued to amass short - in other words, bearish - positions in the two most traded crude oil futures, WTI and Brent.
The WTI net long position - the difference between bullish and bearish bets - fell in the latest reporting week, driven more by fresh shorts entering the market than longs liquidating, ING's commodities strategists Warren Patterson and Ewa Manthey said on Monday.
The net long in Brent futures also dropped, albeit at a much slower rate, the strategists added.
The past few weeks added an additional bearish factor for oil prices--Iraq and Kurdistan are on track to resume oil flows and exports from the semi-autonomous Iraqi region by the end of March.
The resumption of Kurdistan's exports would add about 400,000 barrels per day (bpd) to the oil supply, although it is not clear yet how much of this would be allocated to international markets and how much would be kept for domestic consumption in Iraq.
Among the mounting bearish signals for crude, OPEC+ is set to start adding supply in April, per its current plan to begin easing the production cuts from the second quarter onwards.
But April is also reportedly a target date for the U.S. Administration to have some form of a ceasefire for Ukraine ready by Easter. If oil prices drop materially in case of a peace deal, OPEC+ may have to reconsider, once again, its plans to return more supply to the market.
On the bullish front, tightened U.S. sanctions on Iran under President Donald Trump's "maximum pressure" campaign could support oil prices.
'Drill, Baby, Drill' No More?
Yet, President Trump can't have it all. A deal on Ukraine would surely go down in his own book of "proudest legacy" as a peacekeeper--legacy the President wants to be remembered by, as he said in his inaugural address.
If a deal leads to a $10 a barrel decline in oil prices, it would ease energy costs for American consumers--a key campaign pledge of President Trump.
But U.S. oil producers would not be willing to boost drilling at $10 a barrel lower prices.
They are not ramping up activity even at the current prices as they seek capital efficiencies and cost cuts and stick to spending discipline to return more cash to their shareholders. U.S. producers are unlikely to unleash President Trump's coveted "drill, baby, drill" boom as they look at the economics of output levels and at signals from Wall Street investors.
By Tsvetana Paraskova for Oilprice.com
COMTEX_462923299/2559/2025-02-19T06:42:29
