Oil Climbs After Two-Day Drop as Russia-Ukraine Talks Stall

(Bloomberg) -- Oil rose with the Kremlin reporting there’s been no breakthrough in peace talks while the Ukraine says Russia is deploying reinforcements, dashing hopes for an end to the war. 

Futures in New York settled near $108 a barrel on Wednesday after falling the prior two sessions. The Kremlin said peace talks yielded no breakthroughs, while Ukrainian President Volodymyr Zelenskiy said that Russia is sending new forces as attacks continue on Kyiv. Oil pared some of its gains after a U.S. government report signaled high prices may be depressing demand for fuel during a time of year that consumption is usually taking off toward its summer peak.

The Russia-Ukraine conflict is taking its toll on Russian production, which fell below 11 million barrels a day in the second half of March. Supply is starting to show a “significant decline relative to the beginning of the month,” consultant OilX said in a note.

“The broader trend is now set in place that Europe is looking to get off of Russian energy and that’s going to keep the market tighter than it already was for the medium term, not just the short term,” said Matt Sallee, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. 

The war has triggered huge price moves in the oil market, spurring massive volatility and forcing some traders to head for the exit. The exodus has lead to low liquidity which in turn has led to even bigger swings. West Texas Intermediate has averaged a $9 trading range for the month of March. Brent has moved by $5 or more in 23 of the past 24 trading sessions. Oil has largely traded above $100 since Russia invaded Ukraine and sent already high fuel prices surging even higher.

Record-high gasoline prices may be cutting into demand as the cost to fill up tanks soar. U.S. gasoline demand fell for the third consecutive week, according to the Energy Information Administration, defying seasonal trends. The four-week moving average for implied gasoline demand fell for a second consecutive week. 

“Gas prices at the pump are up 38% from a year ago, so it could be the beginning of demand destruction,” said Ed Moya, senior market analyst at Oanda. “But a few more reports will need to confirm that shift.”

OPEC+ meets on Thursday to discuss its supply policy for May, with the group expected to stick with its strategy of modest output boosts even as the war in Ukraine disrupts flows. Major importers are urging OPEC+ nations with spare production capacity to open the taps faster, but the group’s key members have so far remained unmoved.

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