Oil falls and briefly falls below $100

Crude oil prices were caught up in high volatility on Monday and fell in the wake of new talks between Ukraine and Russia and the confinement of Shenzhen, a Chinese technological center.

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Around 11:15 a.m., a barrel of Brent from the North Sea for delivery in May lost 7.23% to 104.52 dollars.

The barrel of West Texas Intermediate (WTI) for delivery in April plunged 7.75% to 100.89 dollars, following briefly returning below the symbolic bar of 100 dollars.

“Tangible progress was reported in the negotiations between Ukraine and Russia over the weekend,” said Tamas Varga, analyst for PVM Energy.

The prices of black gold are still up 34% since the start of the year, supported by the threat of a break in oil supplies from Russia.

A week ago, Brent peaked at 139.13 dollars, and WTI at 130.50 dollars per barrel, levels not seen since the financial crisis of 2008. Prices have since fallen by more than 25% for the Brent and 22% for WTI.

On Monday, the talks session between Ukraine and Russia resulted in “difficult negotiations”, Ukrainian President Volodymyr Zelensky said. It was all the same held under more positive auspices than the previous ones, even if the conflict has spread in recent days to western Ukraine, at the gates of NATO.

Ukraine said on Monday it would demand an immediate truce and the withdrawal of Russian forces. The fourth round of talks will resume on Tuesday.

These discussions “cause optimism”, says Walid Koudmani, analyst at XTB, but the lull might be short-lived according to him, because “any major event might trigger a new surge” in prices.

“The rush to replace Russian barrels is in full swing, but immediate availability is limited,” with supply on the market remaining tight, explains Mr. Varga.

However, “if the situation continues to show signs of resolution, the markets might adjust quite quickly,” assures Walid Koudmani.

In addition, the 17 million inhabitants of the city of Shenzhen, the technological center of southern China, were placed in confinement on Sunday following the report of epidemic outbreaks linked to the neighboring territory of Hong Kong, where the Covid-19 is havoc.

A situation that has “contributed to lower the price of oil, demand may be affected by the decline in Chinese economic growth,” said Susannah Streeter, analyst for Hargreaves Lansdown.

“There are growing concerns that other cities will follow suit to comply with the country’s strict zero COVID policy,” she continues.

Shenzhen is one of ten cities in China to be under lockdown, which also affects major centers, such as Dalian, Nanjing and Tianjin near Beijing.

Price fluctuations remain likely, “given fears that OPEC + countries (the Organization of the Petroleum Exporting Countries and their allies) will not be able to easily increase supply”, explains Susannah Streeter.

Despite very modest increases in its total black gold production targets, the alliance regularly fails to meet its quotas.