Crude trade enters bearish territory as investors react to Iran and Russia

ChinaCovid’s zero tolerance policy, combined with renewed hope that the Iran the nuclear deal can be revived led to more losses for crude on Tuesday, which also saw oil spill 20 percent over the past week and sliding into bear territory.

In what many analysts describe as the most volatile market ever (and a blessing for motorists everywhere), West Texas Intermediate for April delivery fell $6.57 settle at $6.44 per barrel.

Brent slipped $6.99 settle at $99.91 per barrel.

Crude is now trading below the $100 threshold, Rebecca Babinsenior energy trader at CIBC Private Wealth Managementsaid: “This is a market that trades on two strong emotions: hope and fear, [and] none of these things are going to change the imbalances between supply and demand.”

Pessimism over the Iran talks turned to cautious optimism on Tuesday after Russia Minister of Foreign Affairs Sergei Lavrov said sanctions against his country will not affect the Iran nuclear deal.

Lavrov was perhaps comforted by the fact that despite the sanctions, Russia is not cut off from other export partners: Surgutneftegas provide financing flexibility to certain customers to maintain the flow of crude, and India develops a mechanism to facilitate trade using local currencies.

Yet Russia is moving towards a $150 billion nightmare by default, according to Jonathan Princeportfolio manager at Greylock Capital Associates: he said: “In dollar terms, this will be the most impactful emerging market default since Argentina‘s; in terms of broader market impact, this is probably the most widely felt emerging market default since Russia itself in 1998.”

Swap markets put a 70 percent risk of payment default this year, and fitch reviews says it’s “imminent” – and when it does happen it’s sure to affect rough trading globally to some degree, investors say.

During this time, the Organization of Petroleum Exporting Countries (OPEC) warned in its monthly report published on Tuesday that the Russian invasion of Ukraine has “so far led to a number of problems, including rising commodity prices, which are further aggravating global inflation… the effects of the conflict and in particular the impact of rising inflation, if they are maintained, will lead to a drop in consumption and investment at varying degrees.”

The report also supported the conviction of Saudi Arabia that the cartel produces enough to maintain market equilibrium: its members have increased their production by 440,000 barrels per day (bpd) to 28.47 million bpd in February, bringing the annual average to date to 28.25 million bpd, slightly above the average required this quarter.

As for Russia and Ukraine reaching a ceasefire, the message from the analytical community is: don’t hold your breath.

A research note from kpler said: “While reports of promising talks are welcome, it is difficult to see how either side at this stage would be willing to make any concessions that would be acceptable to either party. .

“In the current situation, it’s hard to see how crude oil prices aren’t undervalued.”

And regarding China maintaining its zero-tolerance lockdown policy even though most countries have chosen to live with the virus, Louise DicksonSenior Oil Market Analyst for Energy Rystadworried about the economic damage that this strategy entails: “It is estimated that a severe confinement in China could put 0.5 million bpd of oil consumption at risk, which would be further compounded by fuel shortages due to inflated energy prices.”

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