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The WTI-Brent oil settlements are the beginning of a bear market

The WTI-Brent oil settlements are the beginning of a bear market

China’s stock market tumbles as authorities tighten regulations, and the Organization of Petroleum Exporting Countries (OPEC) lowers its demand forecast “under consideration.”

Oil prices dropped below $100 a barrel on Tuesday for the first time since the beginning of the Russian invasion of Ukraine nearly three weeks ago, formally establishing themselves in a bear market with losses more than 20% from their previous highs.

Price action

The price of West Texas Intermediate crude for delivery in April, CL.1, +0.29%, dropped $6.57, or 6.4%, to end at $96.44 a barrel on Monday. The settlement was the lowest since February 28, four days after Russia’s invasion of Ukraine began.

Brent crude, the international standard, slid $6.99 a barrel, or 6.5 per cent, to end at $99.91 a barrel — its lowest price since February 25. WTI and Brent have both fallen into a bear market, dropping more than 20% from their March 8 highs, which were the highest since 2008, according to Dow Jones Market Data.

The spot price for natural gas in New York City fell 1.9 per cent to $4.568 per million BTUs on Monday, according to the Department of Energy’s Daily Spot Gasoline Update website (ESG).

According to AAA data released Friday, April gasoline prices fell 5.4 per cent to $2.998 a gallon, and April heating costs decreased 7.5% to $3 a gallon.

Market drivers

Matt Smith, Kepler’s lead oil analyst in the Americas, told MarketWatch that China’s widespread lockdowns are frightening investors because of their impact on energy demand and the uncertainty they create about future lockdowns.

In addition, a COVID lockdown has been imposed across northeastern China and the southeastern manufacturing centre of Shenzhen, near Hong Kong, due to a COVID outbreak.

On Monday, the two nations could not reach an agreement following the previous day’s breakthrough. On Tuesday, Russian forces continued to bomb Ukraine as talks proceeded. Aside from the human suffering, the war has terrified economists worldwide about global economic growth and commodity prices soaring.

According to the Technical Indicator, oil falls “spectacularly” into a bear market after just five days of resting at nearly 14-year highs.

The Organization of the Petroleum Exporting Countries revealed a monthly report Tuesday, stating that it kept its economic predictions and projections for 2022 crude-oil demand and supply growth “under review” as inflation caused by the Russia-Ukraine conflict might lower oil usage.

Oil prices fell Monday according to reports that the United States may lift sanctions on Venezuelan oil, which could help relieve some supply concerns as the Ukraine-Russia war continues to the third week.

“When you look at it, the market may be ‘looking to Russian energy flows and thinking that we may not see as big a supply dent owing to self-sanctioning,'” according to Smith. “Export loading levels of Russian crude and products are continuing as usual, but the impact will soon show given the lag involved.

“Regardless of the cause for the recent sell-off, the fall appears excessive, and prices should recover due to decreased seaborne energy purchases in recent weeks, which will be reflected in lower seaborne flows,” said Smith.

Meanwhile, data revealed that hedge-fund managers “reduced net bullish oil bets to their lowest levels,” according to AvaTrade’s Naeem Aslam. “The retreat demonstrates that major fluctuations in the oil market were part of a broad-based liquidation of positions, with speculators liquidating long futures contracts in WTI, diesel, and gasoline futures.”
“The plunge in Brent was credited to the largest reduction in straightforward bullish bets since 2018.”

In conclusion

The market is being driven by fears about energy demand as lockdowns due to the COVID pandemic continue. In addition, uncertainty about future lockdowns and the Russia-Ukraine conflict also weighs on prices.

 

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