Oil eased after hitting prices not seen in roughly a decade on Thursday, as sellers jumped on hopes that the United States and Iran will agree soon on a nuclear deal that could add barrels to a badly undersupplied market.
Trade was volatile, however, as investors initially bid crude prices up to multiyear highs on worries sanctions on Russia after its invasion of Ukraine a week ago would disrupt global oil flows.
Russia exports 4 to 5 million barrels per day (bpd) of crude, second-most worldwide behind Saudi Arabia, but companies are now shunning Russian supply and scrambling for barrels elsewhere.
Oil markets are in an “explosive mood” over increasing outrage against Russia said Phil Flynn, an analyst at Price Futures Group. “People in the world don’t want to deal with a country that is committing these atrocities in Ukraine.”
Brent futures were down $1.00, or 0.9 per cent, to $111.93 a barrel by 12:36 p.m. EST (1836 GMT), while U.S. West Texas Intermediate (WTI) crude fell 92 cents, or 0.8 per cent, to $109.68.
Both benchmarks rose to multiyear highs earlier in the session, with Brent soaring to $119.84, its highest since May 2012 and WTI hitting its highest since September 2008 at $116.57.
Washington and its Western allies have imposed sanctions on Russia, but the measures have so far stopped short of targeting Russian oil and gas exports. A new round of sanctions announced by the White House on Wednesday ban the export of specific refining technologies, making it harder for Russia to modernize its oil refineries.
But international traders are still wary of becoming entangled in sanctions. At least 10 tankers failed to find buyers on Wednesday, market sources said.
Canada, meanwhile, said it will remove Russia and Belarus’s most favored nation status as trading partners, and will provide additional military aid to Ukraine.
Global benchmark Brent has jumped nearly 25 per cent since the Russian invasion of Ukraine on Feb. 24. Brent’s six-month spread hit a record high of over $21 a barrel, indicating very tight supplies. Russia calls its actions in Ukraine a “special operation.”
Several media reports have suggested that a deal between the United States and Iran is nearly complete, which could bring more than a million bpd of oil, or about 1 per cent of global supply, back to the market.
Negotiations to revive the pact have been going on for 10 months in Vienna, and diplomats are now believed to be in the final stage of talks.
A report by the International Atomic Energy Agency (IAEA), the UN’s nuclear watchdog, on Thursday, however, showed the stock of enriched uranium amassed by Iran was in breach of its 2015 nuclear deal, and growing to the point that the country was nearing the ability to make a nuclear bomb.
The chief of the IAEA, Rafael Grossi will visit Tehran on Saturday in an effort to resolve outstanding issues, another move seen as raising prospects for a deal.
“Grossi’s trip increases the odds of the revival of the (nuclear deal) to 70 per cent from 60 per cent,” consultancy Eurasia Group said, noting “a deal is likely this month and as soon as the next several days.”
Still, that supply relief may only end up filling part of a gap left by buyers curtailing their purchases of oil from Russia, which accounts for about 8 per cent of global oil exports.
“We expect that Russian oil exports will plunge by 1 million bpd from the indirect impact of sanctions and voluntary actions by companies,” said Rystad Energy Chief Executive Jarand Rystad. “Oil prices are likely to continue to climb – potentially beyond $130 per barrel.”
The Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, on Wednesday stuck to an existing plan for a gradual output rise of 400,000 bpd a month, snubbing consumer calls for more.
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