Oil resumes slide after wild week with focus on Ukraine talks

The price of oil declined following a volatile week of trading after Ukraine’s president said talks with Moscow show signs of becoming more substantive, prompting cautious optimism about steps towards de-escalation.

Futures in New York fell more than 2% to trade below $107 (about R1,614) a barrel after rising on Friday. The war in Ukraine has roiled commodity markets from crude to grains, leading to buyers shunning Russian oil as they navigate sanctions, though some are considering workarounds.

Senior US and Chinese officials will meet on Monday as the US seeks to enlist China to help end the invasion.

“Oil is pricing in the chances of a rapprochement, given some encouraging comments,” said Vandana Hari, founder of Vanda Insights.

“The tide began to turn in favour of talks and compromise in Moscow and Kyiv last week.”

There is a flurry of diplomatic efforts to try to  stop the war.

A top adviser to Ukraine’s President Volodymyr Zelenskyy said “continuous” discussions with Russia are underway by video, while Russian President Vladimir Putin engaged with his French and German counterparts after they talked to  Zelenskyy. US Secretary of State Antony Blinken also spoke with Ukraine’s foreign minister.

That heralds the start of a jampacked week that will test whether Russia plans to repay its international debt and will likely see the US Federal Reserve raise interest rates for the first time since 2018, potentially strengthening the dollar. A coronavirus resurgence in China is also causing concern about oil demand.

The prospect of extra oil supply from Iran quickly alleviating a tight market was dashed on Friday. Tehran and world powers suspended talks to restore a nuclear deal after Russia sought US guarantees that sanctions imposed for its invasion wouldn’t affect its planned partnership with the Opec producer. Iran carried out a missile strike in Iraq following the breakdown of negotiations.

Global benchmark Brent remains deep in backwardation, a bullish structure where near-dated contracts are more expensive than later-dated ones, signaling tight supply. The prompt time spread was $3.62 (about R55) a barrel in backwardation, compared with $1.39 (about R21) at the start of last month.

US President Joe Biden’s top advisers have been working to increase pressure on China to enforce sanctions on Russia’s economy imposed by the US and its European and Asian allies. The White House said National Security Adviser Jake Sullivan will meet in Rome, Italy on Monday with China’s top diplomat, Communist Party Politburo member Yang Jiechi.

While Russia has been hit with harsh sanctions and the US  has banned imports of its crude, funds to the nation may not be completely choked off. India is said to be working out a mechanism to facilitate trade using local currencies, while supertankers were being booked to load Russian oil off Denmark. Some ships will be for cargoes that traded prior to the invasion.

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