U.S. oil tumbled more than 8% on Monday, breaking below $100 per barrel, amid talks between Russia and Ukraine as well as new lockdowns in China — which could dent demand.
West Texas Intermediate crude futures, the U.S. oil benchmark, lost 8.75% to trade at $99.76 per barrel. International benchmark Brent crude shed 8% to trade at $103.68 per barrel.
Rebecca Babin, senior energy trader at CIBC Private Wealth U.S., attributed the declines to a mix of geopolitical and demand factors. Russia and Ukraine were slated to resume peace talks on Monday, while China’s March demand is set to be revised lower due to new Covid lockdowns. Additionally, open interest in Brent futures has dropped, which means financial players are reducing risk.
“Today’s action reflects a shift in sentiment in Russia/Ukraine causing sentiment traders to sell, fundamental concerns around demand coming from China’s Covid lockdowns causing fundamental traders to take profits, and technical pressure as crude breaks” key levels, said Babin.
Monday’s sell-off builds on last week’s decline, which saw WTI and Brent register their worst week since November.
Oil surged above $100 in late February as Russia invaded Ukraine, prompting fears that supply would be disrupted in what was already a tight market. It was the first time oil breached the triple-digit level since 2014.
And the climb didn’t stop there. WTI traded as high as $130.50 last week, with Brent almost reaching $140.
The market has been whipsawing between gains and losses in what’s been an especially volatile time for oil prices. The surge has sent the national average for a gallon of gas to the highest on record, unadjusted for inflation, which is adding to inflationary fears across the economy.
Even with Monday’s decline both Brent and WTI are still up more than 30% for the year.
“We have a demand scare for the first time in a while,” said John Kilduff, partner at Again Capital. “The Covid lockdown in China has spooked the market,” he added, noting that high fuel prices around the world is also causing demand destruction.