Rystad Warns ‘Volatility Far from Over’ for Energy Markets

In a market update sent to Rigzone by the Rystad Energy team late Tuesday, Rystad Energy’s Head of Geopolitical Analysis, Jorge Leon, warned that “volatility is far from over” for energy markets.

That Rystad update highlighted that “U.S. and Ukrainian officials said they have reached broad agreement on the basic terms of a peace proposal” but added that “questions remain regarding crucial details and Russia’s willingness to accept it”.

“Energy markets responded to the potential geopolitical breakthrough with a dip in both oil and gas prices, followed by a quick reversal,” the update stated, noting that “U.S. talks with Russian officials are reportedly ongoing in Abu Dhabi”.

Leon pointed out in the update that “the news of a revised peace proposal and ongoing negotiations, with Ukraine’s agreement in principle … prompted an immediate reaction across energy markets”.

He highlighted that oil prices initially fell by around two percent, and that European natural gas prices dropped by a similar amount, “as traders priced in a lower risk of further escalation”.

“However, those early declines have already partially reversed, underscoring how sensitive markets remain to every headline,” Leon said in Tuesday’s update.

The Rystad Energy head went on to state in the update that, “crucially, the devil is still in the details”.

“What are being described as ‘minor points to be resolved’ will determine whether this proposal is accepted by both sides, especially as hostilities have continued in the form of deadly strikes,” Leon said.

“Key issues, including territorial arrangements, security guarantees and implementation timelines, could require several additional rounds of revision. Above all, while some outlets have reported on Ukraine’s agreement in principle, the world is still waiting for an official response by both parties,” he added.

“Early signals, including comments from Russian Foreign Minister Sergei Lavrov, indicate that Moscow could in fact reject the revised proposal. Lavrov stated that if the plan ‘erased…key understandings…the situation will be fundamentally different’,” Leon continued.

The Rystad representative went on to note that, “for energy markets, this means volatility is far from over”.

“Prices reacted swiftly to the initial optimism for an agreement, but the underlying uncertainty has not changed,” he added.

“With several core issues unresolved and fighting still ongoing in parts of Ukraine, any new information from Kyiv or Moscow can move markets sharply in either direction,” he warned.

In a report sent to Rigzone by the Skandinaviska Enskilda Banken AB (SEB) team on Wednesday, SEB Chief Commodities Analyst Bjarne Schieldrop said Brent crude is “wiggling between peace and war”.

“Brent crude traded down 1.4 percent to $62.48 per barrel yesterday with a low of the day at $61.6 per barrel,” he pointed out.

“Last Tuesday it at times traded above $65 per barrel and it has fallen around $2.5 per barrel since then on hopes a Russia/Ukraine peace will materialize out of the latest initiative,” he added.

“But optimism for such an outcome faded a bit yesterday as it is far from clear that Russia will be onboard with the increasingly revised peace plan,” he warned.

Schieldrop noted in the report that “two important concessions ha[ve]… come out of this”.

“One is that Ukraine seems to accept that it will never get back the areas conquered by Russia so far. And secondly the acceptance by Russia that Ukraine will need to have a sizable defensive force in place for security reasons,” he said.

“There is a lot of optimism that these essential concessions will lead to a peace agreement and that helps to keep the oil price down,” Schieldrop pointed out.

Rigzone has contacted the White House, the Department of Information and Press of the Russian Ministry of Foreign Affairs, and the Press Office of the Ministry of Foreign Affairs of Ukraine for comment on the Rystad update and the SEB report. At the time of writing, none of the above have responded to Rigzone.

To contact the author, email andreas.exarheas@rigzone.com