Not even the higher-than-expected draws in Crude and Gasoline in the EIA Inventory Report were enough to pull oil from its defensive posture brought about by the fluid trade situation in trade talks. Crude stocks pulled by 3.1mb, almost double the expectation as exports increased. Decent enough to paint a tighter picture, but the market is nagged by a doubt in Gasoline demand. There was indeed a mirroring of Crude as the motor fuel’s draw of 1.7mb was double the call, but many point to a lag in implied demand. Although product supplied rose by 480kbpd on the week, its current running total of 8.97mbpd at peak summer times is below 9mbpd, the level at which many analysts believe to be the minimum point of demand that shows expansive travel. Given that Distillate, the author of the recent oil complex strength, saw inventory rise by nearly 3mb, it is little wonder that bulls and bears left their engines idling in neutral allowing all the futures contracts to finish nigh on unchanged for the day.

There is then not a single oil driver, be it fundamental or geopolitical that can drown out the sound or indeed avoid the smother of all that goes on in trade negotiations. The news of issues in loading CPC exports from Kazakhstan through the Black Sea due to Russian administrative interference, adding to contamination reports around loadings for Azeri crude from Ceyhan, Turkey, have nudged some buying into action this morning, but follow-through will depend on their longevity. Meanwhile, it is a very much ‘who knows’ when considering how Iranian nuclear talks will go, what might emerge from Istanbul in Russian/Ukraine direct peace talks and the stupefying trade bartering between the EU and China and more importantly where the US level of tariff on the EU finally lands.

Ukraine is no less important than Gaza

While the horrendous loss of life in Gaza is a magnet for attention to world leaders and civilian moral protestations, Vladimir Putin must be most pleased that the issues of the Middle East play patsy in keeping any focus from the Ukraine war. The Russian President’s ability to tickle and fluff Donald Trump, obfuscate when and where he can, feign a willing ear when approached on ceasefire negotiations and generally own narrative and time, means Ukrainians can expect the occupation of its East not to change as each calendar year slowly ticks by.

It seems impossible then to imagine how anything substantive can come from any eventual negotiations between Trump and Putin given the latter’s outlined ability in diplomatic craft, and the former’s inability to hold firm on a Russian position. The US President has had many moments when he is fully engaged in pursuing a solution but quickly seesaws to frustration and disinterest. Despite a crowd-pleasing interview on Tuesday in which Chris Wright, the US Secretary for Energy said there is a “very real possibility” sanctions will be deployed against Russian oil to bring an end to the Ukraine war, the US President is still set to play for time. Given that time is the most valuable commodity for Russia, it plays into the aggressor’s hands but what else can the US do? Allowing Russia a fifty-day moratorium is all but ‘Hobson’s choice’ (when only one option is available), because direct war with Russia is unthinkable. The stay of hand against second-tier tariffs also gives some optionality against oil price pressure as higher levels, and their inflationary influence, is something the US Administration can do without.  

An intention to stall was laid out very clearly even before delegates from Kyiv and Moscow met in Istanbul yesterday. It was the third round of direct talks, but the bar was set so very low beforehand by a Kremlin spokesman saying, “there is no reason to expect any breakthroughs in the category of miracles, it is hardly possible in the current situation.” As much as the previous meetings led to exchanges of prisoners of war and repatriation of dead soldiers remains, nothing like a peace deal ever came close. Be as verbose as he likes, the Ukraine President, Volodymyr Zelensky’s requests to have a one-on-one with President Putin will continue to be debunked. The smoke screens of the Turkish meetings and giving air to Zelensky’s pleas, allows Russia to make more war and press with a summer offensive.

The cost of the invasion is massive. The amount spent on aerial ordnance sent into Ukraine each day runs into tens of millions of dollars and analysts believe that to keep up such weapons largesse will involve sacrificing other theatres of geography experiencing Russian meddling. An opinion piece in ‘The Atlanticist’, published by the Atlantic Council, observes that President Putin will likely continue to weather the astonishing costs of the war, including lost troops, equipment, and influence elsewhere around the globe. He will do this by prioritising defence production, skirting sanctions, and drawing upon his deepened partnerships with North Korea, Iran, and China. And there it is, further affirmation on how markets know sanction avoidance is keeping the war chest full. It is totally beyond prediction what or if any squeezing of Russia’s greatest asset will come from President Trump come September 2nd when the fifty-day tolerance period is over. Even then, to enforce a new set of restrictions will take a great deal of time and compliance from other nations. With the Donald’s predilection to change his mind, it precludes it as a reason for positioning in oil, either way. Meanwhile, thousands of lives will continue to be frittered away, and with each new drone attack and each kilometre gained, Vladimir Putin’s mental redrawing of borders in Eastern Europe will not be satisfied in Ukraine, not in Belarus, Latvia, Lithuania and Estonia; not in Poland but somewhere that butts up against Germany. The Middle East offers a clear and present danger to oil supply, but is the outcome of the Ukraine war and oil’s supply ability to affect its end be any less so?

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