Geopolitics yields largest run of volatility on record

Crude oil price is in the third week of heightened volatility as investors assess the ongoing talks between Russia and Ukraine, and the embedded hurdles. Both the Brent and WTI futures are back above the critical level of $100 per barrel after falling below it earlier in the week.

Fundamental analysis

In recent days, officials from both camps have exuded optimism that the negotiations are headed in the right direction. About a week ago, President Putin indicated that the talks have made a “positive shift”. Besides, in a video address earlier in the week, the Ukranian president noted that the peace talks have gotten more realistic although more time is needed to reach an agreement.

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As a result of the heightened hopes that the crisis in eastern Europe will be resolved in the foreseeable future, crude oil price dropped from its 14-year high of $138.11 in the past week to trade below the psychologically crucial level of $100 per barrel.  

On Wednesday, Brent futures extended its previous losses to an intraday low of $96.95; its lowest level in over two weeks. However, it has since rebounded to $107.50 as at 07:43 a.m GMT.

The bounce-back is the market’s reaction to the stalemate in the ongoing Russia-Ukraine talks. A Russian spokesman stated that while negotiations are set to continue, the report that the talks had yielded major progress was “wrong”.

Even with the negotiations, Russian troops have continued to attack various cities in Ukraine. In a recent incident, the US Embassy in Kyiv reported that Russian forces had shot and killed civilians who were waiting in line for bread. Such attacks, and the imposed sanctions, have made buyers cautious about trading in Russian crude. Indeed, there are rising concerns that stalled ceasefire talks may result in further sanctions from the West; a move that would further disrupt oil supply.

In the ensuing sessions, crude oil price will likely remain subject to heightened volatility as investors remain keen on the developments in the Russia-Ukraine conflict. Surging COVID-19 cases in China, decline in US oil stockpiles, and suspension of talks on the revival of the Iranian nuclear deal will further fuel volatility. Over the past 16 sessions, Brent oil’s price swings have exceeded $5, which is the longest stretch of volatility ever recorded.