The Week In Hindsight, 25 April 2014

Brent crude looked set for another visit to its 2014 peak this week as increasing tensions between Russia and Ukraine led to bloodshed in eastern cities. This was as the agreement reached in Geneva just last week appeared fell by the wayside and violence flared as Ukrainian forces attempted to regain control of the country’s eastern region.

Five separatist rebels were reported to have been killed, prompting harsh rhetoric and veiled threats from the Russian leader Vladimir Putin. This has led to speculation that the recent bloodshed could see Russian military forces crossing into Ukraine over the coming days and weeks.

Despite a positive global growth outlook for the year ahead, ongoing geopolitical tensions and civil unrest have proved the main pillar of support for Brent prices so far throughout Q2. With no sign of abatement to the Ukraine crisis on the horizon, further gains in the benchmark cannot be ruled out.

Brent Crude

 

WTI drops on record inventories

Heavy selling of WTI crude futures saw the benchmark close lower on the week this Friday as both Crude and shale output figures kept prices under pressure from the open. This was before the release of the EIA’s (Energy Information Administration) weekly Crude Inventories report which showed stockpiles in the US reaching their highest levels since May 1931.

While consistently improving rates of output are a positive development for the US government’s ambitions to achieve energy independence, the implications for producers, as well as investors in oil focused vehicles, are not so inspiring. This is because higher rates of output over a sustained period are likely to lead to persistently lower prices in the longer term.

The inventory data has led to further calls among some industry participants for the US government to relax what are some of the world’s most cantankerous export restrictions. Under current legislation it is not possible to export most types of oil from the United States, however; recent events have led many industry participants to begin lobbying for the ban to be removed.

Regardless of the eventual regulatory outcome, the near term outlook for WTI crude sees prices remaining range bound between $100 and $104 per barrel, with a modest bias toward the downside at present.

WTI Crude