Oil prices tumbled below $100 a barrel on Tuesday, setting prices up to settle at their lowest levels since the initial days of the Russian invasion of Ukraine nearly three weeks ago, as investors reassessed the huge run-up in prices seen in recent weeks.
West Texas Intermediate crude for April delivery
fell $7.86, or 7.6%, to $95.15 a barrel. A settlement around that level would be the lowest since Feb. 25, according to FactSet Research — a day after Russia’s invasion of Ukraine.
May Brent crude
the global benchmark, fell $7.68, or 7.2% to $99.22 a barrel, on track for the weakest settlement since Feb. 25.
April natural gas
fell 3.4% to $4.502 per million British thermal units.
dropped 7.5% to $2.931 a gallon and April heating
fell 8.2% to $3.008 a gallon.
Hopes for a diplomatic solution in Ukraine continued to weigh on oil prices Tuesday, along with COVID-19 lockdowns in China, noted Carsten Fritsch, analyst at Commerzbank, in a note to clients.
“What is more, one province in the northeast of China has issued a ban on travel, which is unlikely to leave oil demand in China unscathed. In addition, India has said that it is willing to buy Russian oil, which has become considerably cheaper because Western buyers are refusing to purchase it,” he said.
Negotiations between Ukraine and Russia were set to continue after no breakthrough was reached on Monday, as Russian forces continued to pound Ukraine. Apart from the humanitarian catastrophe, the conflict has sparked concerns over global economic growth and sent commodities prices surging across the board.
Fawad Razaqzada, market analyst at ThinkMarkets, told MarketWatch that he believes the biggest driver behind the selloff in oil has been investor realization that “Europe is not going to wean off Russia oil supply immediately.”
In a monthly report Tuesday, the Organization of the Petroleum Exporting Countries said it was leaving its economic forecasts and its estimates of 2022 crude-oil demand and supply growth “under assessment” as it warned that inflation stoked by the Russia-Ukraine war could undercut oil consumption.
Adding to economic growth worries, China’s southeastern manufacturing hub of Shenzhen, near Hong Kong, has been locked down due to a COVID outbreak, in addition to a COVID lockdown in the northeast of the country.
Oil prices slid Monday on reports the U.S. could lift sanctions on Venezuelan oil which could ease some supply worries as the war between Ukraine and Russia stretches to a third week.
“The downside correction in oil prices is sure a relief when it comes to the inflation expectations, but the new lockdown measures [in China] will continue worsening the supply chain crisis and add on the inflation worries,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients.
Fresh data Tuesday showed China’s economic activity rebounded strongly in the first two months of the year, despite a high base of comparison a year earlier.
Meanwhile, data showed hedge-fund managers “slashed net-bullish Brent oil bets to their lowest levels on record,” noted Naeem Aslam, chief market analyst at AvaTrade. “The retreat demonstrates that significant swings in the oil market were part of a broad-based liquidation of positions, with speculators closing out long contracts in WTI, diesel, and gasoline futures.”
“According to ICE, the fall in Brent was fueled by the largest drop in outright bullish bets since 2018,” he said.