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Discussion Starter · #1 ·
CNN Business

Oil prices dropped 30% in a week. What gives?



Updated 4:18 PM EDT March 15, 2022
London LINK

After Russia invaded Ukraine, global oil prices experienced a dramatic spike. Just over a week ago, Brent crude leaped above $139 per barrel. Analysts warned prices could touch $185, then $200 as traders shunned Russian oil, pushing inflation even higher and adding huge strain to the global economy.

But there's been a rapid reversal since then. Brent crude futures, the global benchmark, have cratered almost 30% from their peak. They settled below $100 per barrel for the first time this month after shedding another 6.5% on Tuesday.

Stocks soared on the news as well. The Dow gained about 600 points, or 1.8%, Tuesday. The S&P 500 and Nasdaq rose 2.1% and 2.9% respectively.

What's happening: The unusually sharp pullback has been driven by hopes that Saudi Arabia and the United Arab Emirates could boost oil production, and that demand from China could drop due to new coronavirus restrictions in major cities. This would ease the squeeze on the market.

Yet analysts warn that we're not out of the woods yet. Oil is still trading significantly above what it costs to produce it, and extreme swings are likely to persist at a moment of huge uncertainty.

"I wouldn't rule out $200 a barrel just yet," Bjørnar Tonhaugen, head of oil markets at Rystad Energy, told me. "It's too soon."

Following the invasion, oil prices skyrocketed as traders began to see Russian crude exports as untouchable. This sparked concerns about how that supply of between 4 and 5 million barrels per day could be replaced, especially as demand for fuel ramps up over the summer.

Over the past week, however, investors seem to be considering whether they went too far, too fast. The United Arab Emirates' ambassador to Washington said that the country wants to increase oil production, sparking hopes that the Organization of the Oil Exporting Countries, or OPEC, could intervene after all. Meanwhile, Russia and Ukraine are still talking, even as the war rages.

Plus, China's commitment to halting the spread of Covid-19, which has led to a lockdown in the tech hub of Shenzhen and new rules in Shanghai, could mean the country needs less energy in the short-term. China imports about 11 million barrels of oil per day.

"People remembered we are still in a pandemic," Tonhaugen said.

Why it matters: The drop in oil prices has helped prevent gasoline prices from moving higher in the United States. They've stopped climbing for now, though a gallon of gasoline still costs almost $4.32 on average.

While $100 per barrel of oil is still extremely expensive, if prices stay in that range, it could ease some fears about an acceleration of inflation. Policymakers would likely breathe a small sigh of relief.

But it's clear that investors remain unsettled as they process the effects of Russia's invasion. Russian oil is still being priced at a huge $26 discount to Brent.

And analysts believe the direction of travel has been set. Giovanni Staunovo, an analyst at UBS, expects oil to trade at $125 per barrel by the end of June. For his part, Tonhaugen of Rystad Energy thinks prices could still smash records as the conflict plays out.

"This is the quiet before the storm," he said.
 
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Boris Johnson is off on a visit to Saudi Arabia to ask the Saudi's to turn the oil tap back on, so hopefully things will resume soon to normal, whilst Russia goes bankrupt broke.

Countries like Pakistan & India have sneaked in been buying cheap Russian oil & gas nobody wants or will touch, the British Government now looking into pulling both their Foreign Aid budgets Pakistan was receiving £300 million in Foreign Aid from British taxpayers, so hopefully barbaric Putin's oil & gas won't such a cheap bargain after all, Foreign Aid money they used to get will subsidies the poorest in society struggling in the UK with high gas & oil prices, and be diverted in Foreign Aid for the poor suffering Ukrainian people.
 
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Commodities markets often overreact. They're driven by emotion and snap reactions to world events.

The jump in price was partly driven by some counties, like the US, banning the import of Russian oil. This brought the possibility of a shortage to mind, drove up the contracts for future delivery. But huge consumers of oil like China and India are still purchasing Russian oil. That eased the supply concerns.

With the war in progress, you may well see more wild swings.
 

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Another factor not mentioned in the article could be that India and China are still buying Russian Oil at a significant discount. If that is indeed the case, it takes some pressure off the rest of the market.
 

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Another factor not mentioned in the article could be that India and China are still buying Russian Oil at a significant discount. If that is indeed the case, it takes some pressure off the rest of the market.
Good point, China was Saudi Arabia's biggest customer in 2021, India imports 62% of its oil from the Middle East.

I think China is in the grips of big steatlh covid lockdown at the moment nothing is moving, nobody is allowed into China with out self isolating for 3 weeks, a lot of the big cities are draconian lockdown not burning anybodies oil, you won't be getting many Apple I-phones their plant is shutdown, so Apple shares are going to drop a bit.

China's new round of COVID curbs hit Toyota, Volkswagen; concerns grow about supply chains
Multiple Chinese provinces and cities have tightened restrictions in line with Beijing's zero-tolerance goal of suppressing contagion as quickly as possible, among them the southern Chinese tech hub of Shenzhen.

TAIPEI/BEIJING -- China's efforts to curb its largest COVID-19 outbreak in two years has forced companies from Apple supplier Foxconn to automakers Toyota Motor Corp. and Volkswagen Group to suspend some operations, raising concerns over supply chain disruptions.

Multiple Chinese provinces and cities have tightened restrictions in line with Beijing's zero-tolerance goal of suppressing contagion as quickly as possible, among them the southern Chinese tech hub of Shenzhen.
Shenzhen, China's Silicon Valley, is carrying out mass testing after dozens of new local cases were recorded. Officials have suspended public transport and urged people to work at home this week as much as possible.

White House press Secretary Jen Psaki said on Monday that the Biden Administration was monitoring the lockdown of the tech hub "incredibly closely."

"What we're looking at is of course ... the impact on some of these ports around the impacted areas of China," she said in a Monday afternoon briefing.


China has reported more local symptomatic COVID-19 cases so far this year than it recorded in all of 2021.

One of the people said the government was allowing companies to operate if they could create a "closed management" system where employees would live and work in a bubble. Such a system was in place during the Beijing Winter Olympics.

Other Taiwan companies which said they had suspended Shenzhen operations included chip substrate and printed circuit board maker Unimicron Technology Corp., which also supplies Apple and Intel, and flexible printed circuit board maker Sunflex Technology Co. Sunflex said its plant would be closed until Sunday.

Paul Weedman, who runs manufacturing consultancy Victure Industrial Co. in Shenzhen, warned that the restrictions were having a ripple effect beyond Shenzhen to the wider Guangdong province. Production for some of his customers' orders have been suspended, and many factory visits cancelled, he said.

"Imagine you have a factory of 100 people and all of a sudden you can’t do anything -- you can’t fulfil your existing orders, you can’t accept new orders. The impact is not 2 or 3 weeks, but 3-6 months."

Shenzhen's Yantian International Container Terminal, one of China's busiest ports, said in a WeChat statement it was operating normally, although two companies with warehouses at the port said they needed to temporarily suspend operations.

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Commodities markets often overreact. They're driven by emotion and snap reactions to world events.

The jump in price was partly driven by some counties, like the US, banning the import of Russian oil. This brought the possibility of a shortage to mind, drove up the contracts for future delivery. But huge consumers of oil like China and India are still purchasing Russian oil. That eased the supply concerns.

With the war in progress, you may well see more wild swings.

As I said in the other (Biden Inflation) thread, (that is now locked) lots of speculation (and hedging) in oil.....

Rectangle Font Circle Magenta Number
 

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My expectation is for the right side to now sing songs of praise for Joe Biden, and all of those gas station stickers to disappear as our great leader has clearly resolved the problem with no outside help and can add this to his list of accomplishments on the White House website and to be distributed in his donation solicitation emails.
 

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My expectation is for the right side to now sing songs of praise for Joe Biden, and all of those gas station stickers to disappear as our great leader has clearly resolved the problem with no outside help and can add this to his list of accomplishments on the White House website and to be distributed in his donation solicitation emails.
I'm pretty sure Trump has already taken credit for this, you know...its part of his "The art of the deal" course which you can learn all about at Trump University.
 

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What I've heard is that zillions in Chyyynnnaaa are locked down again due to the Fauci Plandemic, Round #5. Locked up, don't need no gas.
 

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Prices are down because of a demand scare now that China is locked down again with another Covid wave. Unfortunately, we're still at $4.30/gallon for regular gas and $5.10/gallon for diesel.
 

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My expectation is for the right side to now sing songs of praise for Joe Biden, and all of those gas station stickers to disappear as our great leader has clearly resolved the problem with no outside help and can add this to his list of accomplishments on the White House website and to be distributed in his donation solicitation emails.
Unless Biden sent Obama, sick with Covid, to China as an improvised biological weapon, he has done absolutely nothing. The lockdown in China is killing international demand.
 

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My expectation is for the right side to now sing songs of praise for Joe Biden, and all of those gas station stickers to disappear as our great leader has clearly resolved the problem with no outside help and can add this to his list of accomplishments on the White House website and to be distributed in his donation solicitation emails.
Great the increases from the last 14 days have been erased, now we need to work on the prior 14 months?

Patting yourself on the back because gas goes under $4.00 is as bad as telling me I saved 14 cents on my Independence Day celebration last July.

Or are you dunking on your fan-club, and just forgot the clown emoji?
 

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The rise is fuel prices was driven by speculation, not supply and demand. At the onset of the GFC, the price of crude was higher--in the neighborhood of $140/barrel and the price at the pump was high. However, the price at the pump back then never reached the price at the pump last week.

Back in the 1970s, prices were driven up during the Arab Oil Embargo. We were forced to queue up to fill our tanks. I cannot recall the last time that I waited in a queue for gasoline. With the prices of gasoline rising in 2021 and 2022, there were no queues. People simply paid higher prices, complained about it, and went on about their business. That said, rather than waiting in queues for more expensive gasoline, around my hometown there appear to be fewer cars at the pumps. There is no wait.

For all of the caterwauling about the importance of Russian oil and the daily extended reports on the skyrocketing pump prices of gasoline, there are no signs of a real shortage. What is more, these rising prices come at a time when customers are shifting away from petroleum to electricity to power their vehicles. For those who were having second thoughts about making the switch, many will will more likely to go through with their switch to EVs. The price of gasoline in the filling station's tank has seen dramatic rises. With a viable and much less expensive alternative for much of the industrialized world, it is difficult to maintain high prices absent a significant production cut. And that only exacerbates the trend away from petroleum as a motor fuel.
 

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1. Speculators
2. Covid in China
3. Modest increase in supply/decrease in demand due to pricing

The government had little/nothing to do with it going up and little/nothing to do with it going down.
Exactumundo....

Our government can influence long term trends but they have little power over the commodity markets and speculators.
 

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I'm pretty sure Trump has already taken credit for this, you know...its part of his "The art of the deal" course which you can learn all about at Trump University.
I drank too much Trump vodka and ended up dropping out of Trump University.
 

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My expectation is for the right side to now sing songs of praise for Joe Biden, and all of those gas station stickers to disappear as our great leader has clearly resolved the problem with no outside help and can add this to his list of accomplishments on the White House website and to be distributed in his donation solicitation emails.
Yes we can!! All praise Charihomie Xoe, three cheers for Chairhomie Xoe, praise Chairperson Xoe!

See what going to your worst, most mortal enemies on bended knee, begging and pleading and groveling for them to please grant Chairhomie Xoe JUST ONE SMALL FAVOR! PRETTY PLEASE! will do for you. A Master of International Diplomacy!

Yes, Chairhomie Xoe has one again proven that Ol Popcorn didn't have a prayer ag'in him, and neither did Wlad or Chairhomie Xi or Chairhomie Xoe's Mideast Terrorist buddies!! Hail Chairhomie Xoe!!
 
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