Oil rigs work on platforms at Gaoyu Lake in Gaoyu in east China’s Jiangsu province on Friday, September 17, 2021.
Barcroft Media | Getty Images
Oil suffered heavy losses on Tuesday, extending its decline on Monday, as sentiment was swayed by a variety of factors, including talks between Russia and Ukraine, a potential slowdown in demand in China, and a curtailment of trading ahead of an expected Federal Reserve rate hike on Wednesday.
Both West Texas Intermediate, US benchmark, and global benchmark Brent were below $100 a barrel during Tuesday morning trading on Wall Street, a far cry from over $130 a barrel just over a week ago.
WTI fell 7.6% to $95.26 a barrel after falling 5.78% on Monday. Brent traded down 6.9% to $99.54 a barrel, accelerating Monday’s decline by 5.12%.
“Growth fears due to the wave of stagflation between Ukraine and Russia and the rise of the FOMC this week, as well as hopes for progress in negotiations between Ukraine and Russia” are weighing on prices, said Geoffrey Halley, senior market analyst at Oanda. “The old adage that high prices are the best cure for high prices seems to be stronger than ever,” he added, noting that he believes oil prices are nearing a peak.
Oil rose above $100 a barrel for the first time in years on the day Russia invaded Ukraine, and prices continued to rise as the conflict escalated.
WTI peaked at $130.50 a barrel on March 7, while Brent traded as high as $139.26 a barrel. Prices jumped as traders feared that energy exports from Russia would be disrupted. So far, the US and Canada have banned energy imports from Russia, while the UK has said it will phase out imports from the country.
But other European countries dependent on Russian oil and gas have not taken similar steps.
While self-sanctions have taken place to a certain extent, experts say Russian energy is still finding buyers, including from India.
China’s latest moves to contain the spread of Covid-19 are also weighing on prices. The country is the world’s largest oil importer, so any slowdown in demand will hit prices.
The deal with Iran could also add new barrels of oil to the market. Russian Foreign Minister Sergei Lavrov is in favor of resuming the deal, according to Reuters.
Oil has been particularly volatile in recent sessions, fluctuating between gains and losses with each new geopolitical event.
As Tamas Varga of brokerage PVM summarized, “Is this the reason for all the corrections, or is the market becoming more confident that a significant supply shock can be avoided?”