Oil fell more than 8%, hitting a low of $99.76 a barrel. This means that oil has lost nearly a quarter of its value since it touched a 14-year high of $130.50 a barrel on March 6.
It is the first time that oil has traded below $100 since March 1.
“This is a hell of a correction,” said Tom Cluza, global head of energy analysis at Oil Price Intelligence.
The sale should ease fears of an energy-driven recession in the US and, if it continues, should provide some relief for drivers dealing with the Standard petrol prices.
Brent crude, the global benchmark, fell more than 7% to $104.35 a barrel in recent trading. This is a sharp decline from the recent peak of $140 per barrel.
Traders blamed Monday’s losses on concerns about Covid-19 lockdown in China It hopes for progress in negotiations between Russia and Ukraine.
“You’re seeing some pretty naughty selling,” said Matt Smith, chief oil analyst for the Americas at Kpler.
Despite the recent sell-off, oil is still up more than 30% over the year.
What does this mean for gas prices
However, a dip to $100 should cool prices at the pump, which is moving as oil lags.
Kloza said that if oil prices remain at current levels, the average national price of regular gasoline is likely to fall by about 20 cents a gallon. That could mean gas prices are still high — well over $4 a gallon nationally — but below record levels.
Gas prices have already stopped rising straight, even before the sharp drop in oil prices on Monday. According to AAA, the national average is $4.33 a gallon on Monday. That hasn’t changed since Friday, so things appear to be stabilizing – albeit mainly at record levels.
Unfortunately, any relief at the pump may not last for long.
Klosa still expects gasoline prices to rise in the spring and summer as demand picks up, with the national average rising to about $4.50 a gallon.
“It’s just going to be a road trip,” Kluza said.
Ryan Fitzmaurice, energy strategist at Rabobank, similarly believes that oil prices have yet to set their highest levels in the current cycle.
“Eventually, we’ll see new highs before all is said and done,” Fitzmaurice said. “Given Russia’s size and importance, we will most likely break through the all-time highs set in 2008.”
Covid lockdowns in china
The last stage of oil sales came after that Shenzhen China closed, a major tech hub, as well as many other areas to contain the worst spread of Covid-19 in two years. Lockdowns in China, which has a zero-tolerance policy against Covid, have raised concerns in the energy market about slowing demand from the world’s No. 2 economy.
“Coronavirus has taught us that you cannot count on a stable outcome,” Kloza said. “Just when you think people will go back to normal behavior, here it comes.”
Oil traders are also watching the developments of the war in Ukraine, including the continuation of negotiations between Ukraine and Russia. A ceasefire could ease concerns about a prolonged disruption to oil flows from Russia, the world’s second-largest oil producer, last year.
However, old energy experts cautioned against reading too much into the headlines about the negotiations between Russia and Ukraine.
“I am very skeptical about the success of any kind of negotiation here, period,” said Robert Yauger, vice president of energy futures at Mizuho Securities.
Even in the event of a ceasefire, Yauger said, the West is unlikely to quickly lift sanctions against Russia: “The sanctions are not going away any time soon.”
