The bears have taken over the oil market as prices are down over 5% in the Asian session on Tuesday, sliding to a two-week low as ceasefire talks between Russia and Ukraine eased fears of further supply disruptions. Also weighing in on price is the surging COVID-19 cases in China, which has fueled concerns about slower demand, being that China is the top importer of the black liquid.
The global benchmark, the Brent futures is down 5.24%, currently trading at $101.34 after tumbling by more than $6 to $100.05 earlier in the session. The United States benchmark, the West Texas Intermediate (WTI) crude fell below $100 level for the first time since the first of March, dropping 5.20%, currently trading $98.09 a barrel. The benchmark fell to as low as $96.70 earlier in the session.
Both benchmarks also declined by more than 5% the previous day, with Brent sliding 5.1% and WTI dropping 5.8%. Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd explained, “Expectations of positive developments in the Russia-Ukraine ceasefire talks bolstered hopes to ease tightness in the global crude market. Fresh lockdowns to curb the COVID-19 pandemic in China also raised concerns over slower demand.”
What you should know
- China posted a steep jump in daily COVID-19 infections on Tuesday, with new cases more than doubling from a day earlier to a two-year high as a virus outbreak expanded rapidly in the country’s northeast.
- Further talks between Ukrainian and Russian negotiators to ease the crisis are expected on Tuesday after discussions on Monday via video ended with no new progress announced. So far, buyers continue to shun Russian oil, with a cargo of its flagship Urals remaining unsold, even after traders cut the price of to a record discount.
- U.S. President Joe Biden is expected to travel to Brussels next week to meet with NATO leaders to discuss Russia’s war in Ukraine, sources familiar with the situation said on Monday.
- The United States has warned China against providing military or financial help to Moscow and at the same time, India may take up a Russian offer to buy crude oil and other commodities at a discount, two Indian officials said, in a sign that Delhi wants to keep its key trading partner on board.
Tsuyoshi Ueno, senior economist at NLI Research Institute stated, “Even if there is a ceasefire, oil prices are expected to remain at high levels as Western attempts to isolate Moscow through sanctions will continue, keeping the global oil market in a tight condition. Still, the recent fall in the oil market comes as some investors unwound their long positions as they became increasingly worried about recent volatility.”
Investors are expected to cut their bullish bets on oil as prices are declining at an alarming rate. This is because bears are taking advantage of the extreme volatility seen in the oil market, which has made derivative long positions more expensive to maintain. Investors’ attention is now on the Federal Reserve, which is expected to start tightening monetary policy this week. This action is expected to weigh on markets across board.
