Russia's economic resilience has caused gloom in analytical circles: File Image/Pixabay
Crude traders on Monday continued to exhibit concern over demand as well as the resiliency of a Russian economy under attack by the West, by causing oil prices to drop by 2 percent.
With earlier reports of strong Russian supply despite sanctions from the European Union, traders caused Brent on Monday to settle down $1.76, or 2.03 percent, to $84.90 per barrel; West Texas Intermediate settled down $1.78, or 2.23 percent, to $77.90 per barrel – its steepest decline in nearly a month.
The gloomy sentiment was also driven by investors expecting that the U.S. Federal Reserve will raise rates by 25 basis points on Wednesday, on the heels of similar hikes by the Bank of England and European Central Bank.
Ole Hansen, head of commodity strategy, Saxo Bank
The boat is not really in stormy seas right now
Dennis Kissler, senior vice president of trading at BOK Financial, said, "We're seeing a 'risk back off' sentiment from the past two weeks' rally on ideas that higher interest rates may slow demand more quickly."
Still, some analysts were of the view that all told, market circumstances aren't that bad: Ole Hansen, head of commodity strategy at Saxo Bank, remarked, "The boat is not really in stormy seas right now, so why rock something that's not moving about as it is?"
Hansen was referring to widespread expectations that output policy will remain unchanged after the Organization of the Petroleum Exporting Countries (OPEC) gathers on Wednesday to discuss energy issues.
OPEC agreed last October to cut its production target by 2 million barrels per day (bpd), about 2 percent of world demand, from November until the end of 2023.
Meanwhile, a Reuters poll indicates expectations of another kind: that U.S crude inventories have likely declined by about 1 million barrels in the week to January 27 – although recent Reuters polls have proven to be notoriously unreliable despite their impact on crude trading.
Also in Monday's oil news was unbridled bullish sentiment from RBC Capital Markets, which believes that thanks to China's recent abandonment of its economy-choking Covid lockdown policies, demand in that country will soar and North American benchmark prices will average $92 per barrel later this year.
Michael Tran wrote in a note, "We would not be the least bit surprised if the lows of the year end up being the $72 per barrel print that we saw three weeks ago on the second trading day of the year.
"Is this a bold call less than a month into the calendar year? Maybe, but China's reopening is hardly being priced into the oil market."