Oil Holds Decline as Traders Assess Outlook for Russian Supply

Oil well pump jacks operated by Chevron at the Coalinga Oil Field in Coalinga, California, U.S., on Friday, April 29, 2022. Oil is poised to eke out a fifth monthly advance after another tumultuous period of trading that saw prices whipsawed by the fallout of Russias war in Ukraine and the resurgence of Covid-19 in China. Photographer: Ian Tuttle/Bloomberg Photo by Ian Tuttle /Bloomberg

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(Bloomberg) — Oil held a drop — after slumping by 1.6% on Monday — as US President Donald Trump’s latest plan to pressure Russia refrained from immediate new measures aimed at hindering Moscow’s energy exports. 

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Global benchmark Brent traded near $69 a barrel, while West Texas Intermediate was below $67. Trump boosted military support for Ukraine to resist Moscow’s assault, and threatened to impose 100% tariffs if the hostilities do not end with a deal in 50 days. The planned action effectively represents secondary sanctions on countries buying oil from Russia, according to Matt Whitaker, US ambassador to NATO, citing India and China.

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India emerged as a leading taker of Russian crude as energy flows were reworked following Moscow’s 2022 invasion. China, meanwhile, has been a diplomatic and economic lifeline for Russia, and its refiners also import the nation’s crude.

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Oil has lost about 7% this year, hurt by the fallout from Trump’s trade war, signs of demand challenges in top importer China, and moves by OPEC+ to relax supply curbs. Taken together, the headwinds have fanned concern output may run ahead of consumption this half, creating a glut, although current market metrics, including Brent’s prompt spread, point to underlying near-term support.

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“The lack of any immediate action in relation to Russia, and the belief that secondary tariff threats will not be carried out, help to explain the market reaction,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, for now fundamentals remain supportive in the near term. It is only from the fourth quarter that we see significant loosening in the market, which is when we expect further downward pressure on prices.”

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Traders are due fresh insights into crude’s demand outlook in China later Tuesday as the world’s largest oil importer releases quarterly growth and industrial production figures, with a Bloomberg survey showing the economy expanded just above the government’s full-year growth target of 5%. 

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Elsewhere, Goldman Sachs Group Inc. raised its forecast for Brent this half by $5 to $66 a barrel, citing lower-than-expected OECD stockpiles, especially in the US and for diesel. The outlook for next year, however, was kept at $56. “We continue to think that oil prices are likely to decline substantially by 2026,” analysts including Daan Struyven said in a note.

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