Oil Prices Drop as Ukraine Peace Talks Raise Hopes for Sanctions Easing, But U.S. Tariff Delay Provides Support
Oil Prices Drop as Ukraine Peace Talks Raise Hopes for Sanctions Easing, But U.S. Tariff Delay Provides Support
Oil prices experienced a decline on Friday as prospects for peace talks between Russia and Ukraine sparked optimism that global supply disruptions might ease, potentially leading to a reduction in sanctions against Russia. However, the losses were moderated by a delay in the implementation of U.S. reciprocal tariffs, which provided some support to the market.
Brent crude futures ended the day lower by 28 cents, or 0.37%, settling at $74.74 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped by 55 cents, or 0.77%, to $70.74 per barrel. Despite the daily losses, Brent saw a small gain of 0.11% for the week, while WTI registered a modest weekly loss of approximately 0.37%.
The key driver behind the market’s direction was the news surrounding a potential peace deal between Russia and Ukraine. The conflict in Ukraine has significantly disrupted global energy markets, particularly affecting Russian oil exports. The possibility of a peace agreement, which might lead to the easing of sanctions imposed on Moscow, raised hopes that Russian oil exports could be maintained or even increased. The International Energy Agency (IEA) indicated that if workarounds to the latest U.S. sanctions are found, Russian oil exports could continue, stabilizing global supply.
U.S. President Donald Trump recently ordered officials to initiate discussions aimed at ending the war in Ukraine after both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed interest in peace during separate phone calls with him. A peace deal could potentially lead to the lifting of sanctions on Russia, which would allow its oil and gas industry to regain access to global markets. This development sparked optimism that the situation could bring some stability to the global energy market, which has been volatile due to the ongoing conflict.
Adding to the positive sentiment, a delay in the imposition of U.S. reciprocal tariffs also helped to stabilize the oil market. Trump instructed U.S. officials to review and propose recommendations regarding reciprocal tariffs against countries that impose tariffs on U.S. goods. These recommendations are expected by April 1, but the delay provided some relief to markets that had been concerned about escalating trade tensions and their impact on global energy markets.
While the geopolitical situation weighed on oil prices, other factors also supported the market. U.S. Treasury Secretary Scott Bessent discussed the possibility of applying maximum economic pressure on Iran, a strategy that had been employed during Trump’s first term to reduce Iran’s oil exports to near zero. This announcement also underscored the ongoing tension in the oil market, as the U.S. continues to target countries like Iran in an attempt to curb their oil production and exports.
Additionally, the global demand for oil has been on the rise, with JPMorgan analysts reporting that global oil demand surged to 103.4 million barrels per day (bpd) in early February, up by 1.4 million bpd compared to the previous year. This increase in demand is attributed to a recovery in mobility and heating fuel consumption, which had been sluggish in the earlier weeks of the year. JPMorgan analysts expect the gap between actual and projected demand to narrow in the coming weeks.
On the production side, U.S. energy companies added more oil and natural gas rigs for the third consecutive week. This marks the first time since December 2023 that the U.S. rig count has risen for three weeks in a row. According to energy services firm Baker Hughes, the oil and gas rig count increased by two, reaching a total of 588 rigs for the week ending February 14. The rise in rig activity indicates that U.S. energy companies are ramping up production, which could help meet the growing demand for oil and natural gas.
Overall, while the oil market faced downward pressure from the ongoing geopolitical tensions and the potential for changes in trade policies, several factors, including rising demand, the delay in tariffs, and the prospect of a peace deal in Ukraine, helped to temper losses and provide some stability to prices. The next few weeks will likely see continued volatility as markets react to developments in the geopolitical landscape and the global energy supply.
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