NEW YORK: Oil prices tumbled more than 6% to their lowest in almost three weeks yesterday as supply disruption fears eased and surging Covid-19 cases in China spurred demand concerns.
Brent futures plummeted US$6.99, or 6.5%, to settle at US$99.91 (RM420.52) a barrel, while US West Texas Intermediate (WTI) crude fell US$6.57, or 6.4%, to settle at US$96.44 (RM405.91) a barrel. Both contracts settled below US$100 per barrel for the first time since late February.
Brent fell as low as US$97.44 during yesterday's session and WTI hit US$93.53, their lowest since Feb 25.
Both contracts have moved the closest to oversold territory since December. They had been in overbought conditions as recently as early March, when the benchmarks reached 14-year highs after Russia's invasion of Ukraine. Since then, Brent has lost nearly US$40 and WTI has fallen by more than US$30.
“We have good news and we have bad news,” said Briefing.com analyst Patrick O’Hare.
“The good news is that oil prices are down sharply ... the bad news is that the big drop in oil prices is due to growth concerns which, by extension, don’t bode well for earnings growth prospects,” O’Hare said.
The steep decline yesterday came as Russia said that it has received written guarantees it can carry out its work as a party to the Iran nuclear deal, suggesting that Moscow would allow a revival of the tattered 2015 pact to go forward.
The talks to revive the nuclear accord, which would lead to sanctions on Iran's oil sector being lifted and allow Tehran to resume crude exports, had recently stalled because of Russian demands.
At the same time, a Ukrainian negotiator said yesterday talks with Russia over a ceasefire and withdrawal of Russian troops from Ukraine are ongoing.
“Whilst reports of promising talks (between Russia and Ukraine) are to be welcomed, it is hard to see how either side at this stage would be prepared to make concessions that would be acceptable to any party,” said a research note from Kpler. “In this current situation, it is hard to see how crude oil prices are not being under-priced.”
Further adding price pressure, China saw a steep jump in daily Covid-19 infections, raising renewed worries about the recovery from the coronavirus pandemic.
“China oil demand risk is real,” said Louise Dickson, senior oil market analyst for Rystad Energy.
“It is estimated that a severe lockdown in China could put 0.5 million bpd of oil consumption at risk, which would be further compounded by fuel shortages due to inflated energy prices.”
Meanwhile, the US Federal Reserve is widely expected to raise interest rates by 25 basis points today for the first time in four years to fight soaring inflation. Such a move could strengthen the US dollar and dampen demand for commodities priced in the currency. – Reuters, AFP