OPEC warned that it would be impossible to replace potential supply losses from Russia
Oil prices rallied 6% on Tuesday to get back above $100 a barrel as dip buyers reemerged after a dip towards mid-March lows earlier in the week. Brent crude jumped back to the $105 zone that has been capping further gains so far as the bulls are probably spooked by the 20-DMA, currently at $107.88.
The recent jump in oil prices after Russia’s Putin said that peace talks with Ukraine had hit a dead end, blaming Ukraine for derailing negotiations. Adding to supply concerns, Russian oil and gas condensate production fell to below 10 million barrels per day to hit its lowest level in nearly two years. Furthermore, OPEC warned that it would be impossible to replace potential supply losses from Russia. The organization also cut its forecast for 2022 global oil demand, citing the impact of the situation surrounding Ukraine.
In the US, the API report showed overnight that crude oil inventories rose by nearly 8 million barrels last week versus an expected decline of about 1.4 million barrels. On the positive side, gasoline inventories fell by 5.0 million barrels for the week ended April 7. Now, the market focus shifts to the EIA official report due later today. Should the figures surprise to the downside, Brent crude will struggle to settle above $105 a barrel in the near term.
For the time being, price gains are being capped by a strong dollar coupled with weak economic data out of China where crude oil imports plunged 14% from a year earlier amid the coronavirus restrictions that dented demand in the country.
However, the downside for oil prices remains limited, with the overall bullish trend intact amid the ongoing and intensifying geopolitical tensions that continue to threaten global supply. In the immediate term, Brent crude needs to overcome the mentioned 20-DMA in order to see more sustained gains above $100 a barrel.