Crude price falls despite rising Russia tension over Crimea
The EU has imposed travel bans and asset freezes against Russian and Ukrainian officials
Crude prices fell in mid-March despite rising geopolitical tensions between Russia and the west over Crimea. The oil market’s reaction to the European Union (EU) and US decisions on 17 March to impose travel bans and asset freezes against a number of Russian and Ukrainian officials was muted. Brent and WTI were trading around $106 per barrel (/b) and $98/b on 18 March, both down by over $1/b day-on-day. President Vladimir Putin said Crimea will join the Russian Federation after a referendum on 16 March which saw almost 97% of voters opt to secede from Ukraine. The US and EU have condemned the vote, which Russia says was legal.
There are fears Europe may pay higher gas prices and face supply disruptions next winter if Russo-EU tensions continue to escalate. However, analysts said oil prices have not risen in response to the crisis because Ukraine is not a major transit country for Russian-origin oil sold to the west.
Deutsche Bank said in an 18 March note that crude oil prices fell on 17 March as the market did not see the US and EU sanctions as disrupting oil flows from Russia. The 5m barrels of crude released from US stocks in mid March also eased market tightness, the bank said.
In February, WTI futures surged above $100/b for the first time in five months on the back of cold weather, robust refiner demand and a draw in stocks at Cushing. Brent posted smaller gains month-on-month, supported by ongoing outages in Libya and the unfolding crisis in Ukraine. However, by early March prices for both benchmarks had eased again ahead of planned refinery turnarounds.
The International Energy Agency (IEA) said the lack of market reaction was because of an improving oil supply outlook. Non-Opec supply is expected to increase by 2m b/d in the first quarter of 2014 while Opec’s production surged by a surprise 0.5m b/d last month, rising to over 30m b/d.
The IEA said it expects global oil demand to increase, albeit modestly, in 2014 in line with the International Monetary Fund’s forecast of 3.7% global economic growth this year.