Oil Chill — Believe it or not, it is still possible for oil prices to fall. I know, I didn’t buy it at first either, but just take a look at the charts. Monday saw international crude, aka Brent, lose 5.1% to close at $106.90 while U.S. crude, aka WTI, closed down 5.8% at $103.01.
Well, great! Oil’s falling, so that must mean the Russian invasion of Ukraine must be chilling out, right? Prices at the pump will fall?
Slow down, apes. As Rocky says, “the world ain’t all sunshine and rainbows.” Basically, there were two primary drivers of yesterday’s price action, so let’s take a look.
The first, of course, is Russia-Ukraine. Negotiations have been ongoing between diplomats either on or representing each side. Nothing major has come of them just yet, but during Monday’s fourth round of talks, sentiment largely turned to popular belief in a coming agreement to end the conflict. There’s not much evidence to support this idea, however, as Reuters reports that “no new progress was announced.”
Traders seem to have taken this as a sign that something could soon get figured out, which may allow the U.S. and other countries to start taking Russian oil again. Basically, it’s an anticipated supply increase, and supply up = price down. It’s also worthwhile to mention that big dawg Joey B announced “plans” to visit Europe soon, sparking hope that this could help speed up the negotiations process.
The second is China. In recent weeks, the nation has seen sizable spikes in Covid-19 cases akin to the first breakout back in late 2019 and early 2020. Recall that China has throughout the pandemic fought the virus with a “Zero-Covid” strategy, meaning that extreme measures would be taken if even one case arose. Turns out they weren’t lying, because now, the CCP has locked down massive regions of China, including the financial hub of Shenzen, while also implementing a fresh travel ban.
We learned what that means the hard way in 2020. Lockdowns = less economic activity = less moving around = less oil demand, is the basic equation. As a result, this weighed on prices as well.
Things are far from set in stone. Don’t get all amped up about lower gas prices either, because companies are a hell of a lot slower to lower prices than raise them. Damn capitalism.
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