Oil Plummets On Hope of Russia/Ukraine Ceasefire, Renewed China Lockdown

Oil briefly dipped below $100 for the first time in two weeks: File Image/Pixabay

Oil continued its dramatic downward trajectory on Monday, due to ongoing negotiations between Russia and Ukraine and also because of China locking down 17.5 million people in Shenzhen province to stem a rise in Covid infections.

The latest efforts to stop the Russia/Ukraine war consisted on Monday of a further round of talks between officials focused on a potential ceasefire, and Russian president Vladimir Putin engaging with his French and German counterparts after talking with Ukraine president Volodymyr Zelenskiy.

Sentimental traders took heart, and West Texas Intermediate fell $6.32 to settle at $103.01 per barrel, while Brent slid $5.77 to settle at $106.90 per barrel.

Chris Larkin, managing director of trading at E*Trade from Morgan Stanley, remarked, "There aren't a ton of signs that volatility will ease, at least in the short-term."

In noting that oil on Monday briefly traded under $100 (for the first time since March 1), Tom Kloza, global head of energy analysis at the Oil Price Information Analysis, said, "This is one hell of a correction," and he added that although gasoline prices will rise this spring and summer as demand recovers, "it's just going to be a wild ride."

As for the news from China, which has a zero-tolerance Covid policy, Kloza said, "Coronavirus has taught us you cannot count on a stable outcome: just when you think people are going back to normal behaviour, here it comes."

While the latest round of crude losses are presumably a relief for analysts who insist the recent massive oil gains would exacerbate inflation and eventually cause demand destruction, one hope for alleviating a tight crude market crumbled on Monday when Iran and world powers suspended talks to restore a nuclear deal.

The suspension occurred after Russia sought U.S. guarantees that sanctions imposed for its invasion wouldn't affect its partnership with the Islamic republic.

Still, other countries are scrambling to ramp up production, and the ARC Energy Research Institute reported that spending on conventional oil and gas production in Canada is projected to climb to $22.7 billion this year, up 36 percent from 2021; Suncor Energy Inc. CEO Mark Little said the Canadian oil industry could raise production by more than 200,000 barrels in a short period of time.

ARC also said that Canadian oil patch revenue could hit $225.4 billion this year, up 46 percent from last year and 56 percent from 2014 when the last oil boom occurred.

Meanwhile, energy veterans cautioned against reading too much into the headlines about Russia/Ukraine negotiations, with Robert Yawger, vice president of energy futures at Mizuho Securities, pointing out that "I am super skeptical about any kind of negotiations having success here, period."

He added that even if a ceasefire were to be declared, "Sanctions are not going to disappear anytime soon."