U.S. Oil Prices Fall Below $100 a Barrel Amid Economic Concerns and Strong Dollar, Reports Reuters

By Arathy Somasekhar

HOUSTON (Reuters) – Oil prices fell below $100 a barrel on Tuesday, marking their lowest point in two weeks as concerns over demand were heightened by coronavirus lockdowns in China and escalating recession risks. Additionally, a strong dollar made crude oil more expensive for buyers using other currencies.

U.S. West Texas Intermediate crude dropped by $3.33, or 3.2%, to settle at $99.76 a barrel, while Brent crude declined by $3.48, or 3.28%, to $102.46 a barrel. This represents a second consecutive day of decline for both benchmarks, which had initially plunged by more than $4 a barrel earlier in the day.

The main indexes on Wall Street also experienced a downturn amidst volatile trading, raised by concerns regarding aggressive monetary policy tightening and slowing economic growth.

During the early trading session, comments from energy ministers of Saudi Arabia and the UAE had briefly lifted Brent and WTI prices by over $1 a barrel.

“These are truly volatile times; the price fluctuations are quite significant these days,” remarked John Kilduff, a partner at Again Capital LLC. He added, “The indecision within the EU regarding a potential embargo on Russian oil is affecting market calculations in various ways.”

The European Commission has postponed action on the proposal for a ban. Since unanimity is required to implement such a ban, discussions continue; although a French minister suggested a potential agreement could be reached this week, Hungary has firmly opposed the embargo.

Moreover, certain European economies could face severe challenges if Russian oil imports were significantly reduced. The European Bank for Reconstruction and Development (EBRD) has noted that if Russia retaliates by cutting off gas supplies, countries in emerging Europe, Central Asia, and North Africa may revert to pre-pandemic economic conditions.

In addition to the G7’s gradual ban on Russian oil imports, Japan, which sourced 4% of its oil imports from Russia last year, has also committed to phasing out these purchases, although the details on timing and implementation remain undecided.

Tamas Varga from broker PVM Oil Associates highlighted how COVID-related lockdowns in China, combined with global interest rate hikes to combat inflation, have placed equity investors on the defensive, bolstering the dollar and raising concerns about economic slowdown.

With diminished demand in China due to lockdowns and discounted Russian oil available, the country is more discerning about its crude oil purchases, noted Robert Yawger, head of energy futures at Mizuho.

Cleveland Federal Reserve President Loretta Mester expressed support for raising U.S. interest rates in increments of half a percentage point at upcoming central bank meetings, while Bundesbank chief Joachim Nagel suggested that the European Central Bank should increase rates in July.

The dollar remains near its highest levels in two decades, with an upcoming inflation report expected to provide insights into future Federal Reserve policy.

On the supply front, the U.S. Energy Information Administration has revised downward its crude oil production forecasts for 2022 and 2023, now projecting an average output of 11.9 million barrels per day (bpd) for 2022, a decrease from the previous estimate of 12 million bpd.

Additionally, crude stocks increased by 1.6 million barrels for the week ending May 6, according to sources citing figures from the American Petroleum Institute. This contrasts sharply with analyst expectations of a reduction of 500,000 barrels.

Data from Euroilstock indicated that European refiners’ crude and oil products stocks stood at approximately 1 billion barrels in April, reflecting a 10.3% year-on-year decline but remaining stable compared to March. Stocks of middle distillates fell by 15.4% year-on-year in April and nearly 3% from March.