Oil dips below $100 a barrel; could gas prices fall soon?

The heat is coming from the oil market, and fast.

Brent futures fell below $100 a barrel on Tuesday, falling more than $9 since the previous close. West Texas Intermediate fell below $95 after losing more than 20% in a tumultuous trading week with wild price swings.

At its peak, Brent crude reached $123 a barrel.

Petrol prices at the pump tend to lag oil futures for several weeks, but the decline offers hope to consumers who are paying record prices. AAA reports that the national average for regular gas was $4.31 as of Tuesday, down from $4.33 on Friday.

“It’s a reminder that the cost of oil is about 50% of what drivers pay at the pump,” said Andrew Gross, AAA spokesperson. “This war is shaking an already tight global oil market and making it difficult to determine whether we are near a peak for pump prices or whether they are continuing to rise. It all depends on the direction of the oil price.”

The latest development to rattle the market was a comment by Russian Foreign Minister Sergei Lavrov that the US said sanctions against his country will not affect Iran’s nuclear deal, sparking renewed optimism that the agreement will be revived. could become. A resurgence of Covid-19 cases in China, the world’s largest crude oil importer, and ongoing developments in Ukraine have also sent prices soaring in recent days.

While there are still concerns that the disruption to Russian oil flows is putting pressure on an already tight market, OPEC and others have been quick to point out that there is no shortage.

The market is also in the midst of a liquidity crisis, leaving prices vulnerable to major swings. Clearing houses have widened margins — effectively making it more expensive to trade the same amount of oil — and open interest rates have plunged to their lowest level since 2015. The gap between bids and offers for West Texas Intermediate was sometimes six cents on Tuesday. would usually be only about half that amount – another sign of a less active market.

The latest virus outbreak in China, with growing clusters caused by the highly contagious Omicron variant in some of the most developed cities and economic zones, presents an unprecedented challenge to the country’s Covid Zero strategy. The nation injected more money into the financial system and set a lower-than-expected benchmark interest rate for the yuan in an effort to support the economy.

“The risk premium seems to be quickly evaporating due to oil prices,” said Norbert Ruecker, analyst at Julius Baer. “The pandemic and health restrictions are weighing on China’s economic prospects and thus oil demand.”

While buyers continue to shun Russian crude, there are signs that exports may not be cut off completely as some deals disappear from the public eye. Surgutneftegas PJSC is offering some clients financing flexibility to maintain oil flow, while India is developing a mechanism to facilitate local currency trading. Still, the value of Russian Ural oil continues to fall.

The Polish prime minister and his Czech and Slovenian counterparts will make an unexpected train trip to Kiev on Tuesday to meet with Ukrainian President Volodymyr Zelenskiy and plan to announce a “broad package” of aid measures.

The US and China also had a “substantial discussion” at their first high-level meeting on the war. Meanwhile, the Federal Reserve is expected to start tightening monetary policy this week, putting pressure on markets in general.

The Russian invasion of Ukraine has rippled through markets, fueling inflation as governments try to encourage growth after the pandemic. British lawmakers were given advice by consultant Energy Aspects Ltd. to be told Britain may have to ration products such as natural gas and diesel if the war continues. Consumers are already feeling the pain at the pump as the prices of transportation fuels rise around the world.