Russia to reduce military presence near Ukraine’s capital

Crude oil price has extended the week’s losses as hopes on Russia-Ukraine talks curb its upward potential. Besides, concerns over the resurgence of COVID-19 in China and its impact on oil demand is weighing on the commodity’s prices. Even with the decline, $100 remains a steady support zone amid the ongoing crisis in eastern Europe and rise in global demand.

Russia-Ukraine talks

Crude oil price has edged lower amid the ongoing face-to-face talks in Turkey between Russia and Ukraine officials. Russia’s deputy defense minister, Alexander Fomin has indicated that his country will “drastically” reduce its military presence near Ukraine’s capital city – Kyiv. The energy market has interpreted the announcement as progress in the Russia-Ukraine talks; an aspect that has caused a decline in crude oil price.

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Concerns over Chinese demand

China is a leading consumer of oil in the world. As such, the soaring COVID-19 cases in the country have heightened concerns over the impact of the imposed lockdowns on crude oil demand. Indeed, the Asian country is facing the worst coronavirus outbreak since the beginning of the pandemic about two years ago.

Shanghai, which is one of China’s most populous cities and a key consumer of oil, is one of the worst affected regions. With the ongoing restrictions in the financial center, analysts expect a reduction of demand by up to 200,000 barrels per day.

OPEC meeting

In the ensuing sessions, investors will be eyeing the OPEC+ meeting scheduled for Thursday. The alliance, which Russia is a part of, is set to discuss its oil production policy for May. The meeting comes at a time when countries and companies have continued to cut ties with Russia following its attack on Ukraine over a month ago.

During with an interview with CNBC on Monday, UAE’s energy minister, Suhail Al Mazrouei indicated that Russia will always be  member of OPEC+ irrespective of the ongoing crisis. He further noted that the country’s oil output is irreplaceable by stating, “Who can replace Russia today? I cannot think of a country that can in a year, two, three, four or even 10 years replace 10 million barrels. It’s not realistic.”

The Russia-Ukraine war has heightened inflationary pressures; resulting in soaring energy and food prices. Analysts have insisted that demand destruction is the only solution to the current surge in crude oil price. Global demand for the commodity is back to pre-coronavirus levels as economies recover from the COVID-19 pandemic.

However, OPEC+ will likely maintain its current policy of modest increase in production. A continuation of the existing demand/supply imbalance will likely sustain crude oil price above $100 in the short term.