FX.co ★ And although oil is getting cheaper amid negotiations with Ukraine, the bullish trend in the black gold market will continue

The price of oil continues to decline on Tuesday. The main reason for the weakening quotes is the upcoming ceasefire talks between Russia and Ukraine, which reduce market concerns about interruptions in energy supplies from Russia.

Considerable pressure on the quotes is also exerted by news about the increase in cases of COVID-19 in China. So, in China, a sharp jump in daily cases of COVID-19 infection was recorded, while the number of new cases on Tuesday more than doubled compared to the day before. As a result, the total number of new cases has reached the highest level in the last two years, which increases the likelihood of introducing strict quarantine restrictions. Since Monday, the Chinese government has imposed quarantine for 24 million residents of Jilin Province, which borders Russia and North Korea. On Monday, a lockdown was also announced for a week in the city of Shenzhen. Public transport is no longer working there, many enterprises and educational institutions are closed. And in overpopulated Shanghai, restrictions began to take effect already at the weekend.

Since China is one of the largest consumers of petroleum products in the world, this alarming situation with the introduction of rather strict restrictions risks significantly reducing the demand for black gold on the world market.

Brent crude futures sank 5.6% to $100.95 per barrel. U.S. West Texas Intermediate or WTI crude oil fell 6.4% to $96.35 per barrel. By the way, both benchmarks fell by more than 5% the day before.

Recall that the benchmark Brent crude oil on March 7 reached the highest level in the last 14 years – $139.13 per barrel. About a week ago, American WTI oil was also at its highest level since 2008 - it was estimated at $130.50 per barrel.

The current price correction is a reflection of a slightly relaxed global market, which has finally been able to relieve tension amid expectations of a positive development of the Russian-Ukrainian ceasefire negotiations. Today, on March 15, regular negotiations between Ukrainian and Russian politicians on mitigating the crisis are due to take place. Recall that on Monday, discussions on both sides were conducted via video link and, unfortunately, ended without any statements about new progress.

According to Western European media, US President Joe Biden intends to travel to Brussels next week to discuss with NATO leaders Russia's military operation in Ukraine. At the same time, it is reliably known that the United States warned China against providing military or financial assistance to Russia in this military conflict.

Two Indian officials said India could accept Russia's offer to buy crude oil and other commodities at a discounted price. It is clear that Delhi wants to maintain normal relations with its key trading partner.

Tsuyoshi Ueno, senior economist at the NLI Research Institute, is confident that the upcoming negotiations will not greatly affect oil prices, that is, they will still remain at a high level, even if the long-awaited decision on a ceasefire is made by the warring parties. It is obvious that the West's attempts to isolate Russia with the help of sanctions will continue, and as a result, the limited capabilities of Russia on the world stage will keep the world oil market in an extremely tense state.

Among other things, there is also an opinion among the bidders that in the near future oil supplies from Russia may decrease by all 50%, which will provoke an unprecedented supply crisis on the world stage and send black gold quotes above $150 per barrel.

The bullish trend in the oil market is more than relevant also for the reason that negotiations between the United States and Iran on the resumption of the nuclear deal are at an obvious impasse. Without an agreement with the US government, Tehran cannot increase the supply of black gold to the world hydrocarbon market, although they would be very useful in light of the emerging strong supply shortage.

Summing up, it should be said that the current corrective decline in oil prices is a favorable condition for the implementation of successful purchases.