Oil price & Ukraine Referendums

Russia is planning votes in four captured regions of Ukraine as a prelude to formal annexation at the end of the month.
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Vote, and then what?

Officially polls opened on Friday and will run to Tuesday in four regions of Ukraine under Russian control on whether to join Russia. Soldiers are going door-to-door to collect votes. Putin is reportedly on vacation, or at least away from official duties in Moscow, and has left pre-recorded messages. There are unconfirmed reports that Putin is expected to address the Federal Assembly on Friday to annex the four regions of Ukraine.

The four regions include the independent Donbas region (Donetsk and Luhansk), Kherson and the parts of Zaporizhzhia under Russian control.

The practical implication is that Russia would then have a land bridge to Crimea, control over the sea of Azov, and secure a source of water for Crimea. Additionally, Russia would control the largest nuclear power plant in Europe, which supplies a significant portion of Ukraine.

Possible change in dynamics

Russian officials have styled the war as a pre-emptive action against claimed Western / NATO aggression. Annexing the territories in question would draw a line in the sand for presumed negotiations in the winter. Ukrainian attempts to retake the territories would likely be characterised as attacks on Russian soil and provide excuses for more mobilisation. More importantly for the West, those territories would be included under Russia's nuclear umbrella.

On the other hand, that implies Russia is switching from what appeared to be an offensive war to take as much of Ukraine as possible to a defensive posture to defend existing gains.

The referendums and likely annexation of the territories means Europe coming back to buy Russian oil after sanctions is even less likely. More likely is the possibility of a protracted conflict that both demands more oil and gas to sustain it but also chokes off energy supplies to Europe and the West, forcing them to pay higher prices from further away with more expensive transport.

WTI at a critical junction

Oil prices have been in a bear market since August 14, when the 50SMA crossed below the 200SMA, revealing a "death cross". Near the 78.6% Fibonacci of the $62-$130 leg at $77, a breakdown clears the path to the low itself at $63. In the interim, the $70 handle must hold for a chance at reversal.

Failing to fall below the Fibonacci low amidst an ending diagonal pattern might provide bulls with an opportunity to recapture the golden pocket, currently laying at $88.50 along with the 50SMA. If momentum increases supported by the RSI divergence, the 50% Fibonacci at $96.50 is intermediate resistance below the 200SMA at $100.00.

Key takeaways

Putin is expected to formally address the Federal Assembly on Friday to annex four regions of Ukraine. If the referendum is won, Russia will gain control over the sea of Azov and the largest nuclear power plant in Europe.

Russian officials are justifying the annexation to help protect them from Western aggression. By gaining the four regions and bringing them under Russia's nuclear umbrella, Russia will have the upper hand in negotiations and another excuse for more mobilisation.