Heavy losses on Tuesday followed Monday’s oil dip. The dip in oil is a result of the myriad of global factors.
The global factors affecting the oil dip are slow Chinese demand and the unwinding of trades ahead of the Federal Reserve’s rate hike on Wednesday.
Additionally, talks between Russia and Ukraine have also weighed on the oil dip.
How are global factors affecting the oil dip?
On Tuesday, West Texas Intermediate crude, the U.S. oil benchmark, and Brent crude, the global benchmark, settled below $100 per barrel.
The $100 per barrel is a far cry from over $130 fetched over a week ago.
Senior market analyst at Oanda Jeffrey Halley said, “growth concerns from the Ukraine-Russia stagflation wave, and FOMC hike this week, and hopes that progress will be made in Ukraine-Russia negotiations” affect the prices.
“It seems like the old adage that the best cure for high prices, is high prices, is as strong as ever.”
WTI’s day ended at $96.44, at a loss of 6.38%. It traded low during the session as low as $93.53.
Furthermore, Brent stopped at 6.54% lower at $99.91 per barrel, after low trading at $97.44.
Brent and WTI fell 5.12% and 5.78% on Monday, respectively.
The day Russia invaded Ukraine, crude soared over $100 per barrel for the first time in years.
Are sanctions against Russia effective?
Presently, Canada and the U.S. banned Russian energy imports, while the U.K. will phase out imports from the country.
However, various nations within Europe dependent on Russia’s oil and gas are hesitant to issue sanctions or ban imports from Russia.
Senior energy trader at CIBC Private Wealth U.S. Rebecca Babin said, “it’s really a market that traded entirely on fear.”
“Now, without a true change in the facts, we’re trading on the hope” that things won’t be as bad in the commodity market as initially feared.
She further added, “we don’t have a lot of clarity around what is really going to happen with crude supplies in the future as a result of this conflict.”
However, as self-sanctioning happens to a certain extent, experts believe Russian energy has buyers lined up, including India.
Additionally, China is the world’s largest oil importer, and a dip in demand could lead to higher prices.
China is also implementing the latest moves to control the spread of Covid, resulting in an impact on prices.
Other sources to import oil
An oil deal with Iran could add new barrels of oil to the market.
As per Reuters, Sergey Lavrov favors the resuming of the deal.
Moreover, given the unpredicted geopolitical development, oil prices have faced volatility in recent sessions.
Tamas Varga from brokerage PVM summarized: “Is it the mother of all corrections or the market is turning increasingly confident that a significant supply shock will be avoided?”
A soar in oil prices led to a record high at pumps, and as per AAA on Friday, the national average for a gallon hit $4.331.
However, oil has dipped ever since, and the average gallon of gas halted at $4.316 on Tuesday.