As Russia’s invasion of Ukraine continues into its second month, oil prices edged lower this week after Moscow said it would reduce military operations near the capital of Ukraine and signaled willingness in considering a presidential meeting between Russian President Vladimir Putin and his Ukrainian counterpart Volodymyr Zelenskiy.
Crude oil has largely traded above $100 a barrel since the invasion started on Feb. 24. Ensuing sanctions placed against Russia caused extreme price fluctuations in the oil market, leaving investors wary of trading as the crippling sanctions effectively collapsed Russia’s economy.
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Oil prices drop
In the afternoon of Asia trading hours, international benchmark Brent crude futures fell 3.48 percent to $109.50 per barrel, while U.S. crude futures dropped 4.23 percent to $103.26 per barrel, Bloomberg reported. For the whole month of March, the West Texas Intermediate (WTI) has also fluctuated on average over $9 per session.
Futures in New York fell 1.6 percent on March 28, while WTI futures sank more than 7 percent after Moscow and Kiev alluded to a potential tenuous path forward for the two nations. Talks between negotiators subsequently ended the day without a cease-fire and U.S. advisors were cautioned against declaring progress.
“We are still in a $100 environment, no question,” Paul Sankey of Sankey Research told Bloomberg. China’s continuing lockdowns are also relieving some pressure, but markets remain volatile, he said.
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“China is taking heat out of the market, but if the heat comes back, that adds $10 a barrel.”
US government to release reserve oil
On March 29, the industry-funded American Petroleum Institute reported that U.S. crude supplies dropped 3 million barrels last week, Reuters reported. The data also showed stockpiles in Cushing, Oklahoma — the biggest oil storage hub in the U.S. — declined by about 1.06 million barrels.
Cushing stockpiles have dropped to 27.3 million barrels, the lowest since October 2018, the Energy Information Administration said on March 30. By contrast, Gulf inventories were at 247 million barrels at the end of last week, compared with 224 million barrels at the same time two years ago prior to the start of the pandemic.
“Our prices are rising because of (Russian President Vladimir) Putin’s actions. There isn’t enough supply. And the bottom line is if we want lower gas prices we need to have more oil supply right now,” U.S. President Joe Biden said.
The release would amount to 180 million barrels of oil. Biden’s administration said it would act as a “wartime bridge” as the U.S. and global oil production ramps back up. The decision was made in coordination with U.S. allies overseas, including in Europe, though officials declined to say whether other countries would also be dipping into their stockpile reserves.
“Together, our combined efforts will supply well over a million barrels a day. Nations (are) coming together to deny Putin the ability to weaponize his energy resources against American families and families and democracies around the world,” Biden announced on March 31.
China’s state-owned oil giants announce major capital expenditure
Meanwhile, China’s largest state-owned oil giants recently announced major increases in their capital expenditure (capex) plans for this year. The announcements come as the world’s largest oil importer has increasingly prioritized energy security amid soaring energy commodity prices, power crisis’, and geopolitical turmoil across global markets.
The three largest Chinese oil firms — PetroChina, Sinopec, and CNOOC – expect to raise their collective 2022 capital expenditures by 4.6 percent year over year, reaching at least $84 billion (530 billion Chinese yuan) over the next year.
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China Petroleum & Chemical Corporation (Sinopec) announced this weekend that its 2022 spending would be the highest in the corporation’s history. Sinopec guided for a capital spending of $31 billion (198 billion yuan) this year. The influx would mark an 18-percent increase compared to 2021, and higher than the previous record capex from 2013.
PetroChina has said it plans a lower overall capex this year but will boost spending on exploration and production to develop more resources domestically, including in shale oil and gas formations.
Individually, the planned capex for PetroChina and Sinopec this year are second and third in the world, behind only the capex plan for 2022 of Saudi Arabia’s oil giant Aramco.
The Chinese regime — along with various other non-Western countries including India — has not condemned Russia’s invasion of Ukraine, which the Kremlin calls a “special military operation”, despite increasing pressure from the U.S. and its allies demanding that Beijing address its Russian counterpart and take a stand on the war.
China’s foreign ministry said earlier this month that they would “continue normal trade relations” with Russia despite most European and American firms deciding to cut their losses and exit the severely hit Russian economy.
Despite this, Beijing has been toeing a careful diplomatic line, with some observers noting that the communist authorities fear the extension of Western sanctions to cover China.