Oil prices fall as tensions ease on the russia ukraine border

Oil has been on a see-saw for the last few days with oil prices falling sharply on Tuesday amidst easing tensions between Russia and Ukraine. After touching a peak of Rs.96/bbl on Monday, the price of crude eased lower to $91/bbl before settling at a more rational level of $93/bbl. Clearly, the situation may have eased for the time being, but the tensions are far from over and Joe Biden admitted that Russia attacking Ukraine was a distinct possibility.

On Tuesday, the Dow and NASDAQ rebounded sharply even as European markets were up nearly 2% after oil prices eased. This was after Russia indicated that it was withdrawing some troops from exercises near Ukraine. The thaw in the relations also stemmed from the statement from President Vladimir Putin suggesting that he saw room for further discussion with the Western Powers. Tensions are high between NATO forces and Russia.

Apart from equities rallying on Tuesday, another indication of risk appetite was a fall in the price of gold and bonds. Both asset classes lost some of their appeal as tensions appeared to ease between Russia and Ukraine. However, NATO is yet to confirm if there have been genuine attempts at de-escalating tensions, reduction of troops. The Russian Duma (parliament) is likely to recognize 2 Russian-backed breakaway regions in eastern Ukraine.

However, Putin has a history of saying one thing and doing the opposite so the world order continues to be sceptical about the commitments given by Russia. The view is that Putin may just be biding time waiting for the right opportunity. Apart from the fall in the price of Brent Crude, another interesting trend in the last few days has been sharp narrowing of the spread between Brent and WTI crude, which is now below $1 per barrel.