Why Oil Prices Crashed Back Below $100

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CEM REPORT | The accelerating oil price observed in the last weeks failed to sustain having seen a free fall in the last few days. Prices have crashed back to below US$100, a phenomenon described as ‘correction mode’ in the energy markets.

Oilprice.com wrote that, over the past week, Brent has slipped 30% from the 7 March intra-day high while European gas prices have declined 65%. Brent for May delivery settled at USD 106.90 per barrel (bbl) on 14 March, a w/w fall of USD 16.31/bbl, and moved below USD 100/bbl in early trading on 15 March. WTI for April delivery fell USD 16.31/bbl w/w to USD 106.90/bbl at settlement on 14 March, while the value of the OPEC basket fell by USD 15.84/bbl to USD 110.67/bl and by EUR 15.40/bbl to EUR 101.16/bbl.

At time of writing, West Texas Intermediate, WTI was selling at US$98.15 per barrel while Brent was slightly above US$100 exchanging at US$101.2 per barrel. Bonny light sold for US$102.1 per barrel while Opec Basket was accessed at US$102.9 per barrel.

Though the general atmosphere looks bullish, the market has had more speculative buyers over natural buyers with the mindset that prices will continued to rise conjuring events that should have direct influence on the market.

“Oil traders have mostly been positioned with a highly bullish bias in terms of both outright positions and spreads in recent weeks, meaning optimization in a higher-risk environment has mostly involved closing out prompt longs.

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“The irony of the situation is that the dominance among oil traders of the belief that prices could only move higher has led to a position from which market dynamics dictated that in the short term, prices could only go lower”, Oilprice.com wrote.

A major instigator for the speculative market exchange is the Russian – Ukraine war cum the sanction on Russian oil.

According to commodity analysts at Standard Chartered, Russian oil flows to Europe can be replaced in the short term, with the short-term price implications of that displacement potentially capable of being minimized by the extent to which OPEC members increase output beyond their current OPEC+ targets, and also by the possibility of a successful conclusion to talks in Vienna that results in higher volumes of Iranian exports.

Prices have settled on market realities resting on supply of crude to the market being determined by OPEC quota and lingering underinvestment in new production fields. There is still a resonating forecast of a steady rise in prices directly anchored on these determinants.

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