Crude oil prices plunged more than 6% and closed to their lowest level in almost three weeks on Tuesday (15/3). The sentiment dragging on oil came after Russia suggested it would allow a revival of the Iran nuclear deal to move forward and as traders feared the escalating pandemic lockdown in China could dampen demand.
Tuesday (15/3), the price of Brent crude oil for delivery in May 2022 fell US$ 6.99 or 6.5% and closed at US$ 99.91 per barrel.
The price of West Texas Intermediate (WTI) crude oil for delivery in April 2022 closed down US$ 6.57 or 6.4% to US$ 96.44 per barrel.
In that trade, Brent briefly fell to its lowest level at US$ 97.44 per barrel and WTI reached US$ 93.53 per barrel. This is the lowest position since February 25.
With this result, both crude oil benchmarks are below $100 per barrel for the first time since late February 2022. Since hitting 14-year highs on March 7, Brent has fallen nearly $40 and WTI has lost more than $40. US$ 30.
Trading in oil prices has been very volatile since Russia invaded Ukraine, more than two weeks ago.
On the technical chart, both oil contracts are moving closest to oversold territory since December. Brent and WTI have been in overbought conditions during early March.
The sentiment for oil comes as Russia is the world's largest exporter of crude oil and fuel. Many buyers have avoided buying Russian oil since the invasion of Ukraine. This sparked fears of disruption of millions of barrels of daily crude supplies. Well, now that fear looks exaggerated.
On Tuesday, a Ukrainian negotiator said talks with Russia on a ceasefire and withdrawal of Russian troops from Ukraine were ongoing. The subsequent sell-off pushed prices lower but many expect volatility to continue.
"While reports of promising talks are to be welcomed, it is difficult to see how either side at this stage will be prepared to make concessions that are acceptable to either party," said a research note from Kpler.
"In the current situation, it is difficult to see how crude oil prices are not under-priced," he continued.
Also on Tuesday, Russia said it had written assurances that it could carry out its duties as a party to the Iran nuclear deal. This suggests that Russia will allow the revival of the tattered 2015 pact to proceed.
Talks of reviving the nuclear deal could lead to the lifting of sanctions on Iran's oil sector and allow Tehran to resume crude exports. They stopped because of Russian demands.
As a result of the Russian invasion, which he described as a "special operation", Western sanctions have failed to deter China and India from buying Russian crude.
The Organization of the Petroleum Exporting Countries (OPEC) said demand for oil in 2022 faces challenges from the invasion and rising inflation as crude prices soar, raising the possibility of a reduction in its forecast for strong demand this year.
Meanwhile, China is again experiencing a sharp spike in daily Covid-19 infections, which could slow the current pace of consumption as the country moves into lockdown.
"It is estimated that the severe lockdown in China could jeopardize oil consumption of 0.5 million barrels per day, which will be further exacerbated by fuel shortages due to rising energy prices," said Louise Dickson, senior oil market analyst for Rystad Energy.
This week, the Federal Reserve is expected to raise interest rates by 25 basis points on Wednesday (16/3) for the first time in four years. This is done to fight the soaring inflation. This could strengthen the US dollar and reduce demand for oil and other commodities that are priced in the greenback.
Preliminary data from the American Petroleum Institute showed US crude inventories rose 3.8 million barrels for the week ended March 11. Gasoline inventories fell by 3.8 million barrels and distillate stocks rose by 888,000 barrels, according to the sources, who spoke on condition of anonymity.
Official US government inventory data will be released on Wednesday.
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