Oil registered heavy losses Tuesday, building on Monday’s decline, as myriad factors weighed on sentiment, including talks between Russia and Ukraine, a potential slowdown in Chinese demand and unwinding of trades ahead of the Federal Reserve’s expected rate hike on Wednesday.
Both West Texas Intermediate crude, the U.S. oil benchmark, and global benchmark Brent crude were below $100 a barrel during Tuesday morning trading on Wall Street, a far cry from the more than $130 a barrel just over a week ago.
WTI dropped 7.6% to trade at $95.26 per barrel, after declining 5.78% on Monday. Brent traded 6.9% lower at $99.54 a barrel, accelerating Monday’s 5.12% decline.
“Growth concerns from the Ukraine-Russia stagflation wave, and FOMC hike this week, and hopes that progress will be made in Ukraine-Russia negotiations” are weighing on prices, said Jeffrey Halley, senior market analyst at Oanda. “It seems like the old adage that the best cure for high prices, is high prices, is as strong as ever,” he added, noting that he believes the top is in for oil prices.
Crude surged above $100 per barrel for the first time in years the day Russia invaded Ukraine, and prices continued to climb as the conflict intensified.
WTI hit a high of $130.50 a barrel on March 7, while Brent traded as high as $139.26 per barrel. Prices jumped as traders feared that Russia’s energy exports would be disrupted. So far the U.S. and Canada have banned Russian energy imports, while the U.K. has said it will phase out imports from the country.
But other nations in Europe, which are dependent on Russia’s oil and gas, have not enacted similar moves.
While self-sanctioning has happened to a certain extent, experts say Russian energy is still finding buyers, including from India.
China’s latest moves to curb the spread of Covid-19 are also having an impact on prices. The nation is the world’s largest oil importer, so any slowdown in demand will hit prices.
A deal with Iran could also add new barrels of oil to the market. Russia’s Foreign Minister Sergi Lavrov is in favor of resuming the deal, according to Reuters.
Oil has been especially volatile in recent sessions, whipsawing between gains and losses with every new geopolitical development.
As Tamas Varga from brokerage PVM summarized: “Is it the mother of all corrections or the market is turning increasingly confident that a significant supply shock will be avoided?”