Workers extract oil from oil wells in the Permian Basin in Midland, Texas.
Benjamin Lowe | Getty Images
US oil fell more than 8% on Monday, breaking above $100 a barrel, amid talks between Russia and Ukraine as well as fresh shutdowns in China – which could dampen demand.
Rebecca Papin, chief energy trader at CIBC Private Wealth US, attributed the declines to a combination of geopolitical and demand factors. Russia and Ukraine were due to resume peace talks on Monday, while China’s order in March was due to be revised downwards due to the new coronavirus lockdowns. In addition, open interest in Brent crude futures has decreased, which means that financial players are reducing risks.
“Today’s action reflects a shift in sentiment in Russia/Ukraine causing traders to sell off, underlying demand concerns about coming from China’s Covid shutdowns driving profits for core traders, and technical pressure as crude oil breached,” Papin said.
Monday’s heavy selling builds on last week’s decline, which saw WTI and Brent post their worst week since November.
Oil rose above $100 in late February with Russia’s invasion of Ukraine, raising fears of supply disruptions in an already tight market. This was the first time that oil had breached the three-digit level since 2014.
And the climb did not stop there. West Texas Intermediate crude traded as high as $130.50 last week, with Brent crude nearly reaching $140.
The market has been oscillating between gains and losses in a particularly volatile period for oil prices. The rise sent the national average gallon of gas to an all-time high, unadjusted for inflation, fueling inflationary fears throughout the economy.
Even with Monday’s dip, Brent and WTI are still up more than 30% for the year.
“We have concerns about demand for the first time in a while,” said John Kilduff, partner at Again Capital. “The Covid shutdown in China has terrified the market,” he added, noting that rising fuel prices around the world are also destroying demand.