Oil prices slumped Friday, falling more than 3 percent before regaining lost ground later in the day as Western leaders raised the alarm about an imminent Russian invasion of Ukraine.
Markets are concerned about a potential supply disruption from the conflict in Ukraine, as Russia produces about 10 million barrels of oil per day. But they are also responding to reports that talks to revive a nuclear deal with Iran are progressing, a development that could bring tens of millions of barrels of oil to market.
On Wednesday, an Iranian negotiator, Ali Bagheri Kani, said tweeted: “After weeks of intensive consultation, we are closer than ever to an agreement; However, nothing is agreed until everything is agreed.”
Brent oil, the international benchmark, traded at $92.92 a barrel, down 0.2 percent. West Texas Intermediate fell 0.3 percent to $91.37.
While there are still hurdles to a new deal with Iran, some analysts say it looks like both sides want to overcome them.
“The signals for me, both from Tehran and Washington, are very clear,” said Scott Modell, director of Rapidan Energy Group, a consulting firm. “I think we have what we need in terms of concessions on both sides to make a deal,” added Mr Modell, a former Central Intelligence Agency officer.
Richard Bronze, head of geopolitics at Energy Aspects, a research firm, said markets were “torn between the risks of escalating” the deadlock on the Ukrainian-Russian border and what appears to be growing potential for a deal in the indirect negotiations between Iran and Russia. the United States.
At the moment, the prospect of a deal with Iran seems to outweigh concerns about an oil supply disruption caused by the conflict between Russia and Ukraine. “Geopolitics has driven a lot of the movements up and down,” said Mr. Bronze.
Iran has as many as 80 million barrels of oil in storage, he said, some of it on tankers near Asian markets, ready to sell in the near future. Tehran could then ramp up domestic production by 1.2 million barrels per day within eight months, bringing significant new inventories to the market.
Should a deal come to fruition, and if the oil now stored is dumped on the market quickly, it could push prices down, said Mr Bronze. But over time, he added, the world would need Iran’s oil. However, other analysts say global markets may experience oversupply later in the year.
Of course, traders’ calculations could change quickly if war breaks out over Ukraine or if negotiations with Iran fail.
When it comes to Ukraine, concerns about disruption are centered more on natural gas than on oil. Due to a tight market and a fraught geopolitics, European gas prices are more than four times higher than a year ago, a situation that puts pressure on energy-consuming households and companies, such as fertilizer producers and metal producers.
About a third of Europe’s natural gas supply comes from Russia, mostly through a network of pipelines. Some analysts doubt Russia’s President Vladimir V. Putin would want to cut gas supplies to his key customers, such as Germany and Italy, but pipelines through Ukraine could become collateral damage from fighting, and some analysts worry that Mr. pressure on energy supplies in retaliation for sanctions imposed by the West.
Analysts believe Europe could accommodate a brief interruption in gas supplies from Gazprom, Russia’s gas monopoly. A warm winter at the time of the heaviest gas consumption helped. This week, European Commission President Ursula von der Leyen told reporters: “Our models now show that for a partial disruption or further decline in gas supplies from Gazprom, we are now rather on the safe side.”
But to prepare for a longer lockdown, Europe may need to take strong measures. Such changes are already taking place in today’s tight market.
Flows of liquefied natural gas, largely from the United States, have outpaced Russian gas imports to Europe in recent weeks. If Moscow puts further pressure on supplies, Europe will likely ask other suppliers, such as Algeria, Azerbaijan and Norway, to ramp up the flow, analysts say.
Europe could also take further measures, including restarting shut down coal plants and postponing planned shutdowns of nuclear power plants in Germany. Henning Gloystein, director of Eurasia Group, said businesses could eventually be closed and households could see their energy supplies rationed as a last resort.
