Oil prices rebounded from Tuesday’s losses to rise by more than 3% early on Wednesday, as Russia signaled it would want rubles not only for gas but also for oil, metals, and grains.
As of 9:34 a.m. ET on Wednesday, ahead of the weekly U.S. oil inventory report from the Energy Information Administration, WTI Crude was up 3.63% at $108.00, and Brent Crude was trading up 3.45% at $114.03.
Volatility continued in the oil market this week. Oil slumped early yesterday, with the U.S. benchmark dipping briefly below $100 a barrel after signs emerged that the resumption of the Russia-Ukraine peace talks after two weeks may have been constructive. During the talks in Istanbul on Tuesday, Russia promised to significantly scale back its military operations and activity around Kyiv and in the northern city of Chernihiv. Ukraine, for its part, proposed it would keep a neutral status and would not join alliances or host troops of other countries on its territory.
The U.S., however, sounded skeptical about Russia’s promises to scale back its campaign, and on Wednesday, the market appeared not to be buying Moscow’s promises, either. Prices were also rising after the American Petroleum Institute (API) estimated late on Tuesday that there was a draw this week for crude oil of 3.0 million barrels, compared to analyst predictions of a 1.558 million barrel draw.
On Wednesday, the energy markets in Europe were bracing for a potential disruption to Russian natural gas supply ahead of a March 31 deadline Vladimir Putin had given to Gazprom and the central bank to arrange for ruble payments for gas.
In addition, Moscow signaled today that it could soon demand rubles for other exports, including those of oil, metals, and grains.
“Given the level of uncertainty in the market at the moment combined with the tight supply/demand balance, we expect that oil prices will remain extremely volatile. Falling market liquidity will also add further volatility,” ING strategists Warren Patterson and Wenyu Yao said on Wednesday.
By Tsvetana Paraskova for Oilprice.com
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While Russia can switch its gas supplies from the EU to China, the EU will have to scramble for alternative suppliers. However, these alternative suppliers are in no way capable of replacing Russian gas supplies now or in the future and therein lies the rub.
So the EU faces the prospect of paying skyrocketing prices for gas and using Polish coal for electricity generation. However, the EU’s new import bill will cripple its economy and reduce its economic growth this year to almost zero.
In normal circumstance, EU leaders are right to refuse President Putin’s demand for ruble payments as a breach of contract. But we aren’t in normal circumstances. The EU has already breached the international financial system by excluding Russia from it.
Russia has also signalled that it could soon demand rubles for other exports including oil, metals, and grains.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London