Oil Prices Tumble As Energy Supply Shock Eases

Photo by Timothy Newman on Unsplash

Oil prices extended the retreat from multi-year highs as Brent crude futures fell below the $100 per barrel psychological level on Tuesday after topping above $130 last week. The barrel fell to March lows around $97.40 before trimming losses in recent trading. 

The rally in the oil market has waned as traders started to reassess the risk related to Russia-Ukraine geopolitical tensions. The energy supply shock has eased somehow amid the prospect of a diplomatic solution toward the Ukrainian crisis as the two countries continue to negotiate the key issues. Rising expectations of upbeat developments in the ongoing negotiations help ease concerns over supply disruptions globally.

Also, the buying pressure in the oil market gas eased due to a surge in COVID-19 cases in China as daily new caseload figures have hit two-year highs on Tuesday, making investors worried about the outlook for energy demand from the world’s largest crude oil importer. Meanwhile, OPEC and other oil-producing countries continue to point out that there is no shortage of oil at the moment. 

Against this backdrop, the bearish correction in the oil market has accelerated this week, and it looks like the futures could stay on the defensive in the near term. In a wider picture, however, Brent will stay elevated as long as the geopolitical turmoil surrounding Ukraine persists. 

Technically, the futures need to regain the 20-DMA, currently at $104.50, in order to see a sustained bounce after profit-taking. On the downside, a daily close below $100 would add to the bearish pressure in the near term.