After a massive sell-off on Monday, oil prices continued plummeting early on Tuesday, with Brent dipping below $100 per barrel for the first time since February 28, as speculators abandon the volatile market and Russia claims it wants the Iranian nuclear deal to be signed as soon as possible.
As of 8:30 a.m. EDT on Tuesday, WTI Crude had slumped by 7.61% at $95.22, and Brent Crude had dipped by 7.30% at $99.44. Brent Crude was trading below $100 per barrel for the first time this month, after hitting the triple-digit mark on March 1.
Most of the geopolitical premium from Russia’s invasion of Ukraine has been lost in a highly volatile market, which spooked many speculators. Concerns about Chinese demand in view of renewed lockdowns also weighed on sentiment.
Open interest in oil has dropped to the lowest since 2015, after futures exchanges have raised initial margins significantly since Putin’s war in Ukraine began, thus making trading the same amount of oil futures much more expensive. Moreover, the spike in oil prices and the heightened volatility has led many hedge funds and speculators to close out long—or bullish—positions.
On Monday, Brent Crude traded below its 21-day simple moving average (SMA) for the first time since Russia attacked Ukraine, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.
“The war premium continues to deflate as speculators head for the hills and after the recent surges in diesel and gasoline have raised some demand concerns,” Hansen added.
Oil was plunging on Tuesday after Russian Foreign Minister Sergei Lavrov said today that Russia is in favor of the Iran nuclear deal resuming as soon as possible.
At the end of last week, the talks about the United States and Iran returning to the 2015 nuclear deal that would allow the Islamic Republic to legitimately export its oil were paused “due to external factors,” said Josep Borrell, High Representative of the EU for Foreign Affairs and Security Policy. Moscow has reportedly made last-minute demands that the sanctions against Russia over its war in Ukraine do not impede its trade with Iran.
By Tsvetana Paraskova for Oilprice.com
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The second reason is that the fact that Brent crude has been dropping today gives the lie to claims that customers have been shunning Russian oil exports. In a robust global oil market facing a shrinking global spare oil production capacity, tighter market conditions and declining global oil inventories, any shunning of Russian oil supplies would have sent prices up not down. Therefore, such claims are plain lies.
The third reason is the usual profit taking by oil traders in case Brent crude price dropped further to its pre-conflict level of $94-$95 a barrel.
The decline in oil prices has nothing to do with Russia wanting the Iranian nuclear deal to be signed as soon as possible or concerns about Chinese demand in view of renewed lockdowns.
A nuclear Iran deal isn’t going to be signed soon because the only deal Iran will accept is one on its own terms meaning a lifting of all US sanctions first with no new limitations on its nuclear and ballistic missile development programmes. This the United States egged by Israel can’t accept.
If during the height of the pandemic in 2020 when China was in very strict lockdown it never stopped importing much bigger volumes of crude than in pre-pandemic 2019, does anyone believe that the mere lockdown in one area of China would reduce its crude imports?
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London