Oil prices drop around 6% on easing supply concerns, Ukraine talks

Oil prices plunged to their lowest levels in the past three weeks on Tuesday as supply disruption fears eased and rising COVID-19 cases in China triggered demand concerns.

Brent futures slipped $6.40 or 5.9% to $100.50 per barrel at 13:08 GMT, while US West Texas Intermediate (WTI) crude was down $6.35 or 6.1% to $96.66 per barrel.

Brent dropped as low as $97.44 and WTI touched $93.54, their lowest level since February 25.

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The sharp fall came after a statement from Russian Foreign Minister Sergei Lavrov that Russia supports the 2015 Iran nuclear deal resuming as soon as possible, according to a Reuters report.

The discussions to revive the nuclear agreement, which would lift sanctions on Iran’s oil sector and allow Tehran to resume crude exports, were recently stalled by Russian demands.

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Oil prices extended their losses from the previous day’s 5% fall after a sudden rise in daily COVID-19 cases in China.

The talks between Ukraine and Russian officials were expected to continue on Tuesday, reported Reuters.

On the other hand, sanctions against Russia by the western nations failed to stop China and India from buying Russian crude.

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The markets expected the US Federal Reserve’s Open Market Committee to hike interest rates for the first time since 2018, to boost the US dollar and curb the highest inflation in four decades.

PVM Oil analyst Tamas Varga said this could “send equity and commodity prices further south.”

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Brent has dropped about $4 from the 14-year high it touched on March 7, while WTI has lost almost $30.

However, several analysts are surprised by Tuesday’s decline.

“With the fundamental situation hardly changed, and with the tensions and uncertainties around the war in Ukraine still high, it is puzzling to witness the risk premium evaporate so swiftly,” said Julius Baer analyst Norbert Rucker.

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As a result of the Russia-Ukraine crisis, spare crude production capacity from the Organization of the Petroleum Exporting Countries and its allies remains limited.

According to JPMorgan, “as long as oil market tightness persists, the elevated risk premium in oil prices is likely to persist.”