Brent oil prices fell 5% in a week to a near 5-year low on truce expectations

Oil prices continue to fall under pressure from both fundamental and speculative factors.

 

February Brent crude futures fell 2.5% yesterday to a 4.75-year low of $59/barrel, down 5% for the week and 8% for the month.

 

Sanctions imposed on Rosneft and Lukoil reduced demand for Russian oil, leading to a sharp increase in oil reserves on tankers and a discount on Russian Urals oil.

 

Ukrainian military strikes on Russian shadowy tankers in the Black Sea, as well as on oil rigs in the Caspian Sea, are also reducing demand for Russian oil from buyers.

 

Russian oil prices have been falling for 11 consecutive weeks, and according to Argus Media, they have fallen by 28% in three months to $37.5-40/barrel, which is the lowest level since February 2022.

 

According to Vortexa, the volume of crude oil stored on tankers that have been idle for at least 7 days increased by 5.1 million barrels to 120 million barrels in a week, and according to Bloomberg estimates, Russian oil reserves on tankers have increased to 172 million barrels (taking into account the shadow fleet).

 

Oil shipments from the Russian Federation for the week decreased to 3 million barrels/day or 27 tankers per week, while in the previous week 38 tankers or 4.24 million barrels/day were shipped.

 

Speculative pressure on prices is increasing as hopes for an end to the war in Ukraine increase, which could lead to the lifting of sanctions on Russian oil exports. The United States and Ukraine are engaged in active negotiations to end the war with Russia, but recent statements by Russian officials suggest progress.

 

Weaker-than-expected macroeconomic data on the US economy also signaled a possible decline in energy demand next year, although a surplus of oil supply is forecast on the global market. The US unemployment rate rose by 0.1% in November to a 4-year high of 4.6%. At the same time, the US manufacturing purchasing managers' index (PMI) fell by 0.4% in December to a 5-month low of 51.8 points, below expectations of 52.1 points.

 

President Trump will deliver a State of the Union address tonight, and some experts expect a military operation in Venezuela to oust President Maduro, which should lead to increased oil supplies from the region. But that could distract Americans from the planned release of the “Epstein files” on Friday.

 

Therefore, we expect that the fall in oil prices will increase pressure on the Russian Federation and force it to agree to a ceasefire and cessation of hostilities.