(Bloomberg) — Oil retreated from the highest since 2014 as traders weighed an apparent cooling in the Ukrainian crisis and prospects for increased supply.
West Texas Intermediate fell after topping $95 a barrel on Monday. Despite U.S. warnings a Russian invasion of Ukraine may be imminent, Moscow is now calling for a diplomatic approach and denying, again, it plans an assault.
While the geopolitical risks in Europe will dominate this week, there are also signs of a strong supply response from U.S. shale, as well as the possibility of a revived Iranian nuclear deal with talks under way in Vienna. Both could dampen some of the bullishness by augmenting the flow of barrels.
Crude has roared higher in 2022 as the prolonged crisis in Europe stoked concerns over potential disruptions to energy supplies just as global consumption booms. The rally has drained inventories and lifted global crude benchmark Brent to within a few dollars of $100 a barrel.
“The only thing the market is really focused on at the moment is Russia-Ukraine,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “So developments on that front will be crucial for price direction, and until there is some more clarity on how the situation evolves I would expect a fairly large risk premium to remain priced in.”
Oil markets remain severely backwardated, a bullish pattern that reflects tight supply, with near-term prices trading substantially higher than longer-dated ones. Brent’s prompt spread — the difference between its nearest two contracts — jumped to $2.18 a barrel in backwardation, the widest since 2019.
Falling stockpiles have been a major driver of recent gains, and later Tuesday the industry-funded American Petroleum Institute will issue estimates for changes in U.S. holdings. Inventories at the key storage hub at Cushing, Oklahoma have sunk for the past five weeks, according to government data.
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Still in the U.S., producers are continuing to ramp up supplies as crude has jumped. Production from America’s Permian Basin rose to a record for a third month in a row in January, topping 5 million barrels a day, according to data from the Energy Information Administration.
