US & Russia: How Does It Effect Energy Markets…

Taking precedence over broader geopolitical sentiment are the ongoing negotiations and communications between the US and Russia regarding Ukraine-related tensions. As of Friday the 15th, talks appear to have progressed positively prompting an immediate reaction in the spot markets.

But what does this mean for future market prices? Is there potential for a broader shift in sentiment if relations continue to develop?

If negotiations become more favourable and if certain tariffs or sanctions are lifted there’s a genuine chance that trade routes and supply flows could improve.

Russian oil and gas have long been a critical source of global fuel. Since 2022, the sharp drop in availability has driven prices higher and contributed to inflation across multiple economies. With certain countries still reliant on Russian supply, we could see a return in market confidence not just in gas, but also in oil and broader economic outlooks if even a portion of access is reintroduced.

To avoid painting an overly optimistic outlook, some major factors remain unresolved. The tensions between Ukraine and Russia are far from over, and European perception of Russia has fundamentally shifted.

At the same time, carbon neutral generation projects are progressing at pace. The long term shift away from carbon generating fuel sources is now a fundamental factor in energy infrastructure across much of Europe.

The issue of who controls pipeline infrastructure also remains a major sticking point: “Should Russia own the pipeline and the gas flows?” This question caused unrest and speculation well before the 2022 cut-off, dating back to the disruptions seen in 2021.

Right now, Asian demand is putting a stranglehold on Europe in terms of LNG availability. A small return of Russian supply could take the edge off that pressure. Prices might begin to shift back toward pre-invasion levels but the volatility and upside risk will remain.

If communications continue improving, we could see a drop in forward curve pricing as supply confidence builds and risk premiums ease off.

Are we entering a new phase of reduced geopolitical tensions or is this just a temporary calm before more volatility?

For more information please contact our Head of Trading & Risk, Peter.Leyland@gleg.co.uk.