A barrel of North Sea Brent oil for May delivery closed below $100 on Tuesday for the first time since the second day of Ukraine’s invasion almost three weeks ago in a market concerned regarding an economic slowdown in China.
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The reference price for this variety of oil fell 6.53%, to end at 99.91 dollars, while the barrel of American West Texas Intermediate (WTI) for delivery in April fell 6.37%, to $96.44.
“After falling more than 20% from last week’s highs, crude oil has entered bear market territory,” commented Fawad Razaqzada, analyst at ThinkMarkets.
“It was China that had the biggest impact” on prices on Tuesday, argued Stephen Schork, analyst and author of the Schork Report. China’s decision to order tens of millions of people in lockdown to contain outbreaks of COVID “clearly raises concerns in the market regarding demand.”
China is by far the world’s largest importer of oil, with just over 10 million barrels per day.
“The risk on Chinese demand is real”, abounded, in a note, Louise Dickson, analyst from the firm Rystad Energy, who mentioned a potential drop in consumption of half a million barrels per day linked to confinements.
The analyst nevertheless warns that if, in the short term, a slowdown in Chinese demand is likely to lower the price of black gold, it might, in the longer term, aggravate supply problems with new closures. factories and generate more inflation.
“China has in the past shown its ability to quickly contain the spread (of the virus), and the impact on energy demand has only been apparent in the short term”, argues Bart Melek, head of commodity strategy at TD Securities.
Oil prices also fell in response to hopes “that the talks between Russia and Ukraine might lead to a de-escalation of the conflict”, according to Ricardo Evangelista, analyst at ActivTrades.
A resolution of the conflict in Ukraine “might lead to less severe sanctions once morest Russia and ease supply pressures,” he continues.
Russia is the second largest exporter of crude oil in the world.
“The market was overheated,” according to Stephen Schork. “He had climbed so fast that he was ripe for a pullback, a correction.”
On March 7, prices had reached a record since 2008, at 139.13 dollars for Brent and 130.50 for WTI.
If the two black gold benchmarks have since fallen with a decline in the “risk premium” on supply represented by the war in Ukraine, they remain up more than 46% over one year.
According to Schork, following falling almost 22% in one week, Brent, like WTI, is approaching a technical resistance zone, between $90 and $100, which might allow a rebound.
Another factor contributing to the drop on Tuesday: Russia assured that it had received a guarantee from Washington that the sanctions aimed at it because of Ukraine would not concern its cooperation with Tehran, seeming to remove an obstacle to the relaunch of the agreement on the Iranian nuclear.
A positive outcome of the negotiations would lead to the lifting of sanctions once morest Iran, a founding member of the Organization of the Petroleum Exporting Countries (OPEC).
Iran’s market participation has been severely restricted since 2018 and the reinstatement of US economic sanctions by Donald Trump’s administration.
A return of Iran to full export capacity might reverse the current state of the world’s black gold supply. In 2020, the country produced nearly 2 million barrels a day, but only exported 404,500, according to the OPEC website.
