the barrel closes below $100

Is the oil market temporarily overheated or is the specter of a 1973 shock looming? While the economic situation and the war in Ukraine, triggered by last week’s Russian invasion, pushed the price of a barrel of crude oil nearly $140 – a record since 2008 – prices fell below $100, for North Sea Brent for delivery in Can. This is a first since the second day of the Russian-Ukrainian conflict. During the session yesterday, the price fell 6.53% to $99.91, while the barrel of American West Texas Intermediate (WTI) for April delivery fell 6.37% to $96.44. Over a year, however, prices will continue to rise by more than 46%. This morning they rose slightly to get back above $100 a barrel.

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“After dropping more than 20% from last week’s highs, crude oil has entered bear market territory”said Fawad Razaqzada, an analyst at ThinkMarkets.

The war in Ukraine has caused major volatility in the oil markets in recent weeks. In this regard, the International Energy Agency (IEA) estimated on Monday that: “The prospect of large-scale disruptions to Russian production threatens to cause a global oil supply shock.” On the demand side, the IEA has also revised its 2022 growth forecast down by about 1 mb/d, reflecting the effect of the rise in commodity prices and sanctions against Russia on the economy.

China’s Covid-19 resurgence impacts demand

But according to several analysts, it is not the impact of the conflict – and in particular the limited impact of the US and UK embargo on Russian black gold for the time being – that started a downward trend yesterday. But the resurgence of the Covid-19 pandemic in China. The Middle Kingdom had “greatest impact” on prices Tuesday, argued Stephen Schork, analyst and author of the Schork report. China’s decision to order the incarceration of tens of millions of people to contain Covid outbreaks “Clearly concerns in the market about demand.”

China is by far the largest oil importer in the world, with just over 10 million barrels per day.

“The risk of Chinese demand is real”Louise Dickson, an analyst at Rystad Energy, mentioned a possible drop in consumption of half a million barrels per day due to lockdowns. The analyst nevertheless warns that if a short-term slowdown in Chinese demand is likely to lower the price of black gold, it could exacerbate supply problems with new factories and fuel inflation in the longer term.

“China has shown in the past that it is able to contain the spread (of the virus) quickly, and the impact on energy demand will only be visible in the short term,” says Bart Melek, head of commodities strategy at TD Securities.

Progress on the Iran deal

However, the markets are also very alert to the Russian-Ukrainian situation. Now that Russia is the world’s second largest exporter of crude oil, the advances and outcome of the war will change the supply available. A solution to the conflict in Ukraine “could lead to less severe sanctions against Russia and reduce supply pressure”, explains Ricardo Evangelista, Analyst at ActivTrades

Another factor contributing to Tuesday’s decline: Russia assured it had received a guarantee from Washington that the sanctions directed against it from Ukraine would not affect its cooperation with Tehran, which appears to remove an obstacle to the relaunch of the Iran Nuclear Agreement. A positive outcome of the negotiations would lead to the lifting of sanctions against Iran, a founding member of the Organization of the Petroleum Exporting Countries (OPEC). Iran’s market participation has been severely restricted since 2018 and the recovery of US economic sanctions by the Donald Trump administration.

A return of Iran to full export capacity could reverse the current state of the world’s black gold supply. In 2020, the country produced nearly 2 million barrels per day, but exported only 404,500, according to the OPEC website.

Exactly, OPEC is evaluating the effects of the war in Ukraine on world oil demand this year. The cartel has so far maintained its forecast of an increase in crude oil demand by 4.2 million barrels per day (mb/d) this year, reaching a total of 100.90 mb/d.

These producers are sticking to the rate adopted a few months ago. Last week, they persisted in their move to open the floodgates to the dropper despite price increases linked to the war in Ukraine, amid supply fears. In reality, several members fail to meet their production quota.

The thirteen members of the Organization of Petroleum Exporting Countries (OPEC), led by Riyadh, and their ten allies led by Moscow have agreed “to raise their total production level for the month of April by 400,000 barrels per day”announced the cartel in a press release after a brief meeting, with the result not surprising.

“This forecast is likely to change in the coming weeks,” if there are more “Brightness” on the effect of the geopolitical turbulence related to the war in Ukraine, the Organization of Petroleum Exporting Countries (OPEC) reports in its annual report.

The United States is looking for oil everywhere

In recent weeks, another world oil producer has been in the spotlight to further supply the market in day barrels: Venezuela. About ten days ago, Americans and Venezuelans announced talks to lift restrictions Washington had imposed for several years on its worst enemy on the continent – and former leading supplier of imported crude oil. The United States decided very early on to reopen the dialogue with Caracas, in particular to partially cover the end of its imports of Russian hydrocarbons.

But White House spokeswoman Jen Psaki assured Monday, March 14, that no… “No active discussions at the moment” for United States purchases of Venezuelan oil, during his routine press briefing.

Venezuela has just released two Americans detained in the country, a move that has fueled speculation about a warming relationship with the United States, or even a resumption of US imports of Venezuelan oil,

At the same time, the United States is turning to other black gold producers. To offset Russia’s oil imports, the White House is turning to Saudi Arabia and the United Arab Emirates to ask them to increase production. In addition to being bound by the agreement that governs OPEC+, these two countries have set preconditions, according to the Wall Street Journal.

It shows that the Saudis have set their conditions to increase their oil supply: technological support and information sharing in support of their military intervention in the civil war in Yemen, where they face Iran-backed Houthi rebels, a technological assistance to develop their own nuclear program and, And last but not least, immunity for Crown Prince Mohamed bin Salman to travel to the United States. The same man who accuses Joe Biden of ordering the murder of Saudi journalist Jamal Khashoggi.

Brazil will increase its production

However, the United States can count on good news in recent days. The Brazilian government has informed its counterpart in the United States that it will increase its oil production, Brazil’s Ministry of Mines and Energy said Monday, a decision that could help allay concerns over the global supply of crude oil. Brazil’s Minister of Mines and Energy, Bento Albuquerque, responded last Thursday to a request from his US counterpart Jennifer Granholm, who had told him via video conference the importance of a possible production increase from Brazil.

Mrs (Granholm) asked me if Brazil could be part of this effort (produce more oil, editor’s note), and I said ‘of course you can’. We are already increasing our production, while most countries of the OECD have reduced it. production increased over the past three years”, That said Mr Albuquerque in a message his ministry sent to AFP on Monday.

Latin America’s largest economy is among the ten largest oil producers in the world, producing about 3 million barrels per day.

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(with agencies)