Albeit perhaps temporary, U.S. oil costs dipped below $100 per barrel on Monday, reversing a significant portion of the recent surge triggered by Russia’s invasion of Ukraine. Oil fell by more than 8%, reaching a low of $99.76 a barrel. Since reaching a near 14-year high of $130.50 a barrel on March 6th, oil has lost over a quarter of its value.
It’s the first time since March 1st that oil has traded below $100. “This is one hell of a correction,” said Tom Kloza, the Oil Price Information Analysis’ global head of energy analysis. The selloff should alleviate worries of an energy-driven recession in the U.S., and if it lasts, it will provide some comfort to motorists who are paying record fuel prices.
The global benchmark, Brent crude oil, fell more than 7% to $104.35 per barrel in recent trade. This is a significant drop from the previous high of about $140 per barrel. Traders attributed Monday’s losses to fears over China’s pandemic-related lockdowns, as well as optimism for progress in Russia-Ukraine talks.
Despite the latest drop, oil is still up more than 30% year so far. Nonetheless, the return to $100 should bring down gas costs, which follow oil prices. If oil prices remain unchanged, the national average price for standard gasoline would likely fall by around 20 cents per gallon, according to Tom Kloza. That means gas prices are still high – above $4 a gallon throughout the country – but not at all-time highs.
Even before Monday’s dramatic drop in oil, gas prices had already stopped rising straight up. According to AAA, the national average was $4.33 a gallon on Monday. That’s the same as it was on Friday, so things appear to be leveling out – but at near-record highs.
Any reprieve at the pump, though, may not stay for long. As demand rebounds, Kloza predicts gasoline prices to rise this spring and summer, with the national average rising to roughly $4.50 per gallon. Kloza remarked, “It’s going to be a wild ride.” According to Ryan Fitzmaurice, an energy strategist at Rabobank, oil prices have not yet reached their maximum levels in the current cycle. “Ultimately, we’ll see new highs before all is said and done,” Fitzmaurice stated. “Given how big and important Russia is, we will probably breach those all-time highs set in 2008.”
The newest phase of the oil selloff occurred after China quarantined Shenzhen, a critical technological hub, and many other locations to contain the largest pandemic outbreak in two years. The lockdowns in China, which has a zero-tolerance policy regarding the virus, sparked concerns in the energy market that demand from the world’s second-largest economy might decline. “Coronavirus has taught us you cannot count on a stable outcome,” Kloza added. “Just when you think people are going back to normal behavior, here it comes.”
Oil dealers are also keeping an eye on events in Ukraine’s conflict, especially ongoing talks between Ukraine and Russia. A truce might ease worries of a long-term disruption in oil supplies from Russia, the world’s second-largest oil producer, last year. On the other hand, Energy veterans warned against reading too much into the headlines surrounding the Russia-Ukraine talks. Fingers crossed, either way.
