Oil futures declined by more than 4% on Tuesday, a day after settling at their highest level in over seven years, as Russia said some troops were returning to their bases after military exercises near the border with Ukraine, potentially damping fears of an invasion.
Price action
-
West Texas Intermediate crude for March delivery
CL.1,
-4.20% CLH22,
-4.20%
fell $4.61, or 4.8%, to $90.85 a barrel on the New York Mercantile Exchange. -
April Brent crude
BRN00,
-3.83% BRNJ22,
-3.83% ,
the global benchmark, fell $4.26, or 4.4%, to $92.22 a barrel on ICE Futures Europe. WTI and Brent on Monday posted their highest settlements since September 2014. -
March natural-gas futures
NGH22,
+1.24%
rose 1.1% to $4.241 per million British thermal units. -
March gasoline futures
RBH22,
-3.97%
fell 4.7% to $2.648 a gallon, while March heating oil
HOH22,
-3.84%
was down 4.6% to $2.826 a gallon.
Market drivers
Fears of an imminent Russian invasion of Ukraine faded somewhat after Moscow said Tuesday that some units would begin returning to their bases, though Ukraine’s leaders expressed skepticism. The announcement comes a day after Russia’s foreign minister indicated Moscow was prepared to keep talking with the U.S. and its allies about security issues that have led to the Ukraine crisis.
The threat of an invasion was cited as a reason for the recent jump in crude prices that took both benchmarks near the $100-a-barrel threshold.
“The key question for this market is how much Ukrainian war premium is in this market,” said Phil Flynn, senior market analyst at The Price Futures Group, in a Tuesday note. “If Russia does pull back, can oil fall $10 dollars or $20 in the event that the Russian-Ukraine situation is diffused?
“Whatever the answer is, the reality is that when they find that number, oil will resume the rally,” he said.
The risk premium in prices is probably closer to $10 a barrel, Flynn said, but the market will recover. “Global oil inventories were tight before this tension and will be tight after things hopefully calm down,” he said.
In a Tuesday newsletter, analysts at Sevens Report Research pointed out that the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, continue to undershoot collective production targets amid strong demand. Given that, the “path of least resistance” remains to the upside with a medium-term price target of $105 a barrel for WTI, they said.
Related: Why OPEC+ can’t hit its oil production targets — and what it could do about it
Oil traders also look ahead to weekly U.S. petroleum-supply data from the Energy Information Administration due Wednesday. On average, analysts forecast a decline of 200,000 barrels in crude inventories for the week ended Feb. 11, according to a poll conducted by S&P Global Platts. They also expect supply declines of 900,000 barrels for gasoline and 1 million barrels for distillates.
