Oil prices plunged below $100 a barrel on Tuesday, bringing prices to their lowest levels since the early days of the Russian invasion of Ukraine almost three weeks ago, as investors overestimated the huge price spike seen in recent weeks.
price action
West Texas Intermediate crude for April delivery CL.1, -7.90% CL00, -7.90% CLJ22, -7.90% fell $7.86, or 7.6%, to 95.15 dollar per barrel. The settlement at this level will be the lowest since February 25, the day after Russia’s invasion of Ukraine, according to FactSet Research.
May Brent crude BRN00, -7.44% BRNK22, -7.44%, the global benchmark, fell $7.68, or 7.2%, to $99.22 a barrel, approaching its weakest settlement since 25 February.
April natural gas NGJ22, -2.81% fell 3.4% to $4.502 per million British thermal units.
April gasoline RBJ22, -7.64% fell 7.5% to $2.931 a gallon and April gasoline HOJ22, -9.06% fell 8.2% to $3.008 a gallon.
Market Drivers
Hopes for a diplomatic solution in Ukraine continued to weigh on oil prices on Tuesday, along with COVID-19 lockdowns in China, Commerzbank analyst Carsten Fritsch said in a note to clients.
“Moreover, one province in northeast China has imposed a travel ban, which is unlikely to leave Chinese oil demand unscathed. In addition, India has stated that it is ready to buy Russian oil, which has fallen significantly in price due to the fact that Western buyers refuse to buy it,” he said.
Talks between Ukraine and Russia were set to continue after no breakthrough was reached on Monday as Russian forces continued to shell Ukraine. In addition to the humanitarian catastrophe, the conflict has raised concerns about global economic growth and led to a widespread rise in commodity prices.
Fawad Razaqzada, a market analyst at ThinkMarkets, told MarketWatch that he believes the main driver behind the oil sell-off was the realization by investors that “Europe is not going to cut oil from Russia immediately.”
In Tuesday’s monthly report, the Organization of the Petroleum Exporting Countries said it was leaving its economic forecasts and estimates for crude oil supply and demand growth in 2022 “underestimated” as it warned inflation fueled by the Russia-Ukraine war could undermine oil consumption. .
On top of concerns about economic growth, China’s southeastern manufacturing hub in Shenzhen, near Hong Kong, has been put on lockdown due to the COVID outbreak, in addition to the COVID lockdown in the country’s northeast.
Oil prices slipped on Monday on reports that the US may lift sanctions on Venezuelan oil, which could ease some supply concerns as the war between Ukraine and Russia enters its third week.
“A downward correction in oil prices is certainly a relief when it comes to inflation expectations, but new measures to curb [in China] will continue to exacerbate the supply chain crisis and heighten concerns about inflation,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note to clients.
Fresh data released on Tuesday showed that China’s economic activity rebounded sharply in the first two months of the year, despite a strong base of comparison a year earlier.
Meanwhile, data showed that hedge fund managers “cut net bullish bets on Brent oil to their lowest level on record,” said Naeem Aslam, chief market analyst at AvaTrade. “The retreat demonstrates that the significant swings in the oil market were part of a wide-ranging liquidation as speculators closed out long WTI, diesel and gasoline futures contracts.”
“According to ICE, the fall in Brent was caused by the biggest drop in outright bull rates since 2018,” he said.