The price of a barrel of oil was trading below $100 for both American West Texas Intermediate crude and the international benchmark Brent. Those were both well below last week, when oil averaged around $115-$125 a barrel and briefly hit $139.
Some positive sentiment out of negotiations to end the war in Ukraine, along with increased concern that China’s economy will slow amid an outbreak of coronavirus that has prompted lockdowns are behind the sudden reversal in fortune. China is the world’s largest importer of oil.
Positive comments from Russian Foreign Minister Sergey Lavrov on negotiations between the West and Iran over its nuclear weapons program also buoyed oil markets. Iran is a major producer of oil.
But, it could also be that traders overreacted to the increasingly pessimistic global environment and were looking for a chance to adjust positions.
Noting that oil prices had dropped from a high of $139 hit during the March 7 trading day, analysts at UBS wrote of the downward trend: “The move reflects easing fears of further supply disruptions based on cease-fire talks between Russia and Ukraine.”
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“There were also indications that while energy companies in Europe continue to avoid Russian oil, India has bought discounted Russian crude, potentially mitigating the hit to global supplies from import bans in the US, UK, and Canada.” UBS added. “Renewed pandemic-related lockdowns in China, including the 17 million people in the nation’s southern tech hub of Shenzhen, also have the potential to reduce oil demand in the near term.”
Gas prices have stopped their meteoric rise, at least for the moment. While the national average is still $4.30 as of Tuesday, according to AAA, the daily prices shown on Gas Buddy’s website puts gas below $4 in some markets in Florida, New Jersey, Virginia and Texas.
Analysts caution that prices remain extremely volatile, subject to a change on the battlefield in Ukraine or increased demand or global economic conditions.
Even so, the drop spiked a sharp rally in stocks on Tuesday, with the Dow Jones Industrial Average rising 599 points. Dow futures were up more than 350 points in pre-market trading Wednesday following a rally overnight in Hong Kong.
Markets are eagerly awaiting news from the Federal Reserve, which completes its two-day meeting Wednesday with expectations it will begin raising interest rates to combat rising inflation. But even that move is complicated, as a report Tuesday on producer price inflation showed the rise in gasoline prices accounted for a third of the run-up in prices last month.