(Bloomberg) — The heat is coming out of the oil market, and fast.
West Texas Intermediate oil futures have shed more than 20% since closing at the highest since 2008 a week ago, dropping below $100 a barrel on Tuesday. That followed a tumultuous period of trading that saw prices fluctuate wildly, with intraday swings for global benchmark Brent crude eclipse $20.
The latest developments to rattle the market is a resurgence of Covid-19 cases in China, the world’s biggest oil importer, and what appears to be progress in cease-fire talks between Ukraine and Russia. While there are still concerns that the disruption to Russian crude flows is squeezing an already tight market, OPEC and others have been quick to point out there is no shortage.
“Sentiment in commodity markets remains driven by headlines, with talks between Russia and Ukraine raising hopes that supply disruptions will be minimal,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. “This should see oil prices come under increasing pressure. However, it doesn’t reflect the fundamental picture, with Russian oil becoming increasingly isolated.”
Buyers continue to shun Russian crude, with a cargo of its flagship Urals remaining unsold, even after traders cut the price of to a record discount. However, Surgutneftegas PJSC is offering buyers some financing flexibility to keep flowing crude, while India is working out a mechanism to facilitate trade with using local currencies.
Ukraine’s main negotiator said they were working on a potential cease-fire with Russia before talks were paused so each side could take stock. The US and China also had a “substantial discussion” in their first high-level meeting on the war. The Federal Reserve, meanwhile, is expected to start tightening monetary policy this week, which is weighing on markets in general.
UK lawmakers were told by Energy Aspects Ltd. that the nation may have to ration products like natural gas and diesel if the war in Europe continues. Consumers are already feeling the pain at the pump, with prices of transport fuels rising across the globe.
China’s latest virus outbreak, with growing clusters spawned by the highly infectious omicron variant in some of its most-developed cities and economic zones, is an unprecedented challenge for the country’s Covid Zero strategy. Authorities have now locked down Langfang city in northern province of Hebei a day after isolating the 17.5 million residents of Shenzhen.
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