Oil fell more than 8%, hitting a low of $99.76 a barrel. This means that oil has lost almost a quarter of its value since hitting a nearly 14-year high of $130.50 a barrel on March 6.
Oil is trading below $100 for the first time since March 1.
“This is a hell of a correction,” said Tom Kloza, global head of energy analysis at Oil Price Information Analysis.
The sell-off should ease fears of an energy-driven recession in the United States and, if it continues, should bring some relief to drivers facing record gas prices.
Brent crude, the global benchmark, fell more than 7% to $104.35 a barrel in recent trading. This marks a sharp pullback from the recent high of nearly $140 a barrel.
Traders attributed Monday’s losses to concerns about China’s Covid-19 lockdown and hopes for progress in talks between Russia and Ukraine.
“You’re seeing some vicious selling,” said Matt Smith, lead Americas oil analyst at Kpler.
Despite recent sales, oil has risen in price by more than 30% year on year.
What does this mean for gas prices
However, a drop to $100 should cool pump prices that are lagging behind oil.
If oil prices remain at current levels, the national average price of regular gasoline is likely to fall by about 20 cents a gallon, Kloza said. This would mean that gas prices are still high – above $4 per gallon nationally – but below record highs.
Gas prices had already stopped going straight up, even before oil plummeted on Monday. Monday’s national average is $4.33 a gallon, according to AAA. That hasn’t changed since Friday, so things seem to be leveling off, albeit mostly at an all-time high.
Unfortunately, any pump relief may not last long.
Kloza still expects gasoline prices to rise this spring and summer as demand recovers, with the national average rising to around $4.50 a gallon.
“It’s going to be just a wild ride,” Kloza said.
Ryan Fitzmaurice, energy strategist at Rabobank, also believes that oil prices have not yet reached their highest level of the current cycle.
“Ultimately, we will see new highs before all is said and done,” Fitzmaurice said. “Given how big and important Russia is, we are likely to surpass the all-time highs set in 2008.”
Covid lockdowns in China
The latest phase of the oil sell-off came after China locked down Shenzhen, a major technology hub, as well as several other regions to contain the worst Covid-19 outbreak in two years. Lockdowns in China, which has a zero tolerance policy for Covid, have raised concerns in the energy market about declining demand from the world’s No. 2 economy.
“The coronavirus has taught us that you can’t count on a stable result,” Kloza said. “Just when you think people are back to normal behavior, that’s it.”
Oil traders are also following the development of the war in Ukraine, including the continuation of negotiations between Ukraine and Russia. The ceasefire could ease fears of a prolonged disruption to oil supplies from Russia, which was the world’s second-largest oil producer last year.
However, energy veterans warn against reading too much headlines around talks between Russia and Ukraine.
“I am very skeptical about the success of any negotiations, period,” said Robert Yauger, vice president of energy futures at Mizuho Securities.
Yauger said that even in the event of a ceasefire, the West is unlikely to quickly lift sanctions on Russia: “Sanctions will not disappear anytime soon.”