Oil prices plunge below $100 per barrel as supply concerns ease
Oil prices tumbled below $100 for the first time in three weeks with both benchmarks weighed down by multiple geopolitical headwinds.
This month’s historic rallies in prices – which saw oil peak at 14-year highs of $139 per barrel on March 7 – have subsided amid reduced fears over both supply shortages and rebounding demand.
Brent Crude prices plummeted 8.23 per cent to $98.10 per barrel – while WTI Crude has fallen 8.64 per cent to $94.11.
Following today’s drop in prices, Brent Crude has lost almost $40 since March 7, and WTI has dropped more than $30 over the same time period.
The loss of market momentum comes ahead of resumed talks between Russia and Ukraine, after weeks of intense and brutal conflict.
Negotiations between Ukraine and Russia are expected to enter a fourth round following the evacuation of hundreds of people from Mariupol yesterday.
Craig Erlam, senior market analyst OANDA said: “The talks between Ukraine and Russia aren’t just lifting market sentiment, they’re alleviating some of the worst fears around commodity supply disruptions.”
Meanwhile China has reported surging Covid-19 cases – with domestic cases rising to two-year highs of 3,507.
Ricardo Evangelista – senior analyst, ActivTrades explained: “The restrictions to economic activity in China, resulting from the lockdowns, will cause a reduction in demand that will be welcomed by traders that have been struggling amidst a very tight market, and contribute to a drop in prices.”
Market rallies falter on the prospect of US-Iran deal
Another factor weighing down prices is the renewed prospect of a US-Iran deal – which could see potentially 3.8m daily barrels of oil flood the market.
Russian Foreign Minister Sergei Lavrov has revealed Russia is in favour of the 2015 Iran nuclear deal resuming as soon as possible – describing the deal as being in the home straight.
Last week, it appeared the agreement had collapsed after Russia demanded guarantees its trade with Iran would not be affected by Western sanctions, following its invasion of Ukraine.
Reviving the the nuclear deal could lead to sanctions on Iran’s oil sector being lifted ,and allow Tehran to resume crude exports – boosting supplies in the market with Iran producing 3.8m barrels per day at peak levels.
It is unclear why Russia’s position has seemingly evolved since then.
Despite the drop in prices, oil markets remain tight with OPEC+ persistently missing raised production targets of 400,000 ever barrels of oil per day.
Meanwhile, Western sanctions against Russia have failed to deter China and India from buying Russian crude – with India weighing up a deal for discount supplies while China has so far sustained a ‘business as usual’ approach with the Kremlin.
The oil market also expects interest rates to rise 25 points in the US, when the Federal Reserve’s Open Market Committee meets later this week – which could boost the U.S. dollar and hurt commodity prices.
Johnson backs nuclear power to reduce reliance on Russia
Prime Minister Boris Johnson is now set to travel to Saudi Arabia to convince them to boost oil output with continued calls from the West so far falling on deaf ears.
In a column for The Telegraph, he also argued there needs to be a “series of big new bets” on nuclear power to make sure the UK’s energy supply is “no longer at the mercy of bullies like Putin”.
Johnson urged the West to end its “addiction” to Russian energy, and described nuclear as “safe, clean and reliable.
Commenting on Vladimir Putin, he said: “If the world can end its dependence on Russian oil and gas, we can starve him of cash, destroy his strategy and cut him down to size.”
The UK is in the construction stages for its Hinkley Point C power plant – and also intends to build Sizewell C before the end of the decade.
The government has also given the green light for Rolls-Royce to continue its plans to build small modular reactors.
Earlier this month, the UK announced plans to phase out Russian oil over 2022, as it ramps up energy sanctions.
Downing Street is set to publish its British Energy Security Strategy this month, which will outline its plans in more detail.