Brent Crude Drops Below $100 But Why What Is The Reason Behind It
Brent Crude Drops Below $100 But Why What Is The Reason Behind It

Brent Crude Drops Below $100 But Why? What Is The Reason Behind It

In addition to two consecutive weeks of falls, oil prices fell on Monday, reaching their lowest level since February, as demand concerns were raised by lockdowns in China. The price of barrels of international standard Brent crude decreased by 4.18 percent to close the day at $98.48, the lowest settlement since March 16. West Texas Intermediate crude futures ended the day at $94.29, down 4.04 percent. The contract traded as low as $92.93 throughout the session, the lowest price since February 25.

The largest negative factor hurting the market, according to Andy Lipow, owner of Lipow Oil Associates, is the spread of Covid in China. “The impact on oil markets might be enormous if [Covid] spreads throughout China, resulting in a big number of lockdowns. According to Jim Cramer, investors should buy oil and energy equities. The Shanghai region consumes about 4% of China’s total crude, which is the largest oil importer in the world, according to Lipow. Given Russia’s position as a significant producer and exporter of oil and gas, the potential impact on demand comes as the supply side of the equation has received significant attention.

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The release of 120 million barrels from emergency stocks by IAEA members, 60 million of which would come from the United States, was revealed last week. The Biden administration had previously announced that 180 million barrels will be released from the Strategic Petroleum Reserve in an effort to lower skyrocketing costs. Last week saw a 1% drop in WTI and a 1.5% drop in Brent, marking the fourth consecutive negative week for both contracts.

Since Russia invaded Ukraine, oil prices have been on a wild rollercoaster. On March 7, WTI temporarily reached a high of $130.50, the highest price since July 2008. Since then, the contract has decreased by around 30%. In contrast, Brent increased to $139.13 in March. Fears about what a disruption in Russian supply would mean for an already constrained market contributed to the decision in part. Three million barrels per day of Russian oil production were previously expected to be in jeopardy, according to the IEA.

Traders also linked oil’s erratic price movements to non-energy market participants trading contracts, among other things, as a hedge against inflation.However, Wall Street corporations were quick to warn out that while using emergency oil reserves will short-term reduce the price surge, it does not address the underlying problems in the market.

In response to the emergency releases, UBS stated that ′′[S]ome of the market tightness induced by the self-sanctioning of Russian crude importers — either in fear of future penalties or for reputational reasons — should alleviate. “But it won’t fix the structural imbalance in the oil market caused by years of underinvestment at a time when global demand is recovering,” the company continued.

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