WTI chops between $112 and upper-$116s as traders assess Russia supply concerns, US/Iran talks

Oil markets have seen volatile trade thus far this Thursday, with traders juggling a multitude of themes. WTI swung between multi-week highs in the upper $116s and the $112 area, and at current levels around $113 trades about a buck lower on the session. Dips toward $110 attracted solid demand as energy market participants continue to weigh up the size of the loss of Russian oil supply. Executive Director of the IEA Fatih Birol said on Thursday that IEA countries were united in seeking to radically reduce Russian oil and gas imports, with Western nations have imposed harsh sanctions on the Russian economy over its invasion of Ukraine.

On which note, Thursday saw a flurry of NATO and EU summits where those sanctions were marginally toughened, though there was no EU announcement of an EU embargo on Russian oil. Whilst the lack of embargo will come as a disappointment to the oil bulls, Russia’s new demand on Wednesday for so-called “unfriendly” countries to pay for Russian energy purchases in roubles may itself act to significantly reduce EU imports. The extent to which this will be the case remains unclear, with traders also needing to weigh up the loss to global supply after it was announced earlier in the week that Russian crude oil exports from Kazakhstan's Caspian Pipeline Consortium (CPC) terminal had been halted due to storm damage.

Updates regading US/Iran negotiations for a return to the 2015 nuclear pact and removal of sanctions on Iranian oil exports have also been downbeat as of late, reducing the chances that 1.3M barrels per day or more of much needed Iranian exports return to global markets any time soon. “Unless Iran is allowed back to the market quickly it is hard to see how to further price increase, potentially above the recent peaks, can be avoided,” said analysts at PVM.

Though chatter about another coordinated crude oil reserve release appeared to cap WTI gains in the $116 area on Thursday, any bearish impact is likely to be limited/short-lived, given official inventory data on Wednesday showed the US Strategic Petroleum Reserve (SPR) at its lowest since 2002. WTI bulls will likely be looking for a run into the $120s and back towards multi-year highs in the $130 area, printed earlier on in the month.