Oil Sinks Further Below $80 Amid A Broader Equities Sell-off

A host of factors contributed to bearish sentiment within crude circles: File Image/Pixabay

With inflation and recession threats casting a pall over virtually every aspect of economic endeavour, it wasn't surprising that oil prices on Monday fell further below $80 concurrent to a broader equities market decline.

The gloom made positive reaction to China announcing further easing of Covid restrictions short-lived: West Texas Intermediate earlier in the session gained as much as 3.4 percent.

WTI fell $3.05 to settle at $76.93 per barrel, while Brent dropped $2.89 to $82.68 per barrel.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, summarized the bearish sentiment by remarking, "Many have decided to tune out altogether; volumes are light and positioning is decimated as it seems prudent to wait until 2023."

Phil Flynn, senior market analyst at Price Future Group Inc., added, "Macro-economic jitters about the Fed and what they're going to do on interest rates are taking over the market."

Ironically, the main reason for oil and stock markets paring gains was said to be an unexpected pickup in U.S. services industry activity, with employment rebounding.

Also unable to penetrate the gloom was the beginning of a European Union and Group of Seven cap on Russia crude prices, at $60 per barrel, a compromise that many analysts think will do minimal if any damage to the former Soviet Union's economy but might be just enough to cause the nation to retaliate against European countries supporting the cap. 

Indeed, Julian Lee, oil strategist for Bloomberg First Word, said on Monday that the cap will please nobody except the U.S., and that the threshold needed to be set much lower in order to make a dent in the Kremlin's war chest.

Also on Monday, Saudi Arabia's state-owned Saudi Aramco cut its key Arab Light grade for January sales to Asia by $2.20 to $3.25 per barrel above the regional benchmark.

This came on the heels of the Organization of Petroleum Exporting Countries (OPEC) deciding to maintain current output levels and was viewed as another sign of fragile demand moving forward.