WTI price continued to decline on Tuesday, dropping below the psychological level of $100 per barrel for the first time since the beginning of the month, and falling as low as $94.5 per barrel. Reports of renewed negotiations between Russia and Ukraine this week, sparked hopes of a de-escalation of the crisis, driving oil prices down. WTI is still trading in an uptrend, but in case the price of oil drops further, support may be found around $90.0 per barrel.
Over the past few months, the oil price has been going up, driven by increasing demand and limited supply. The war in Ukraine has further increased risks of disruption in the supply of oil, pushing its price further up. This week, however, reports of a new wave of covid cases in China, forcing the country to enter lockdown once again, have pushed prices down. If the pandemic is re-ignited and countries start imposing new restrictions and re-entering lockdowns, it will signal another drop in the demand for oil and its price will decrease dramatically.
Last week, the US banned all oil and gas imports from Russia, catapulting oil prices to over $130 per barrel. The UK has similarly vowed to phase out its dependency on Russian oil and major British oil companies are already boycotting Russian oil. US sanctions raised fears that the EU would also impose an embargo on Russian energy-related products. A potential EU oil and gas ban would have a considerably higher impact, creating a severe energy crisis and driving oil prices further up. The EU however, has not yet imposed direct bans on Russian oil and gas imports, since the Eurozone relies heavily on Russian energy-related imports, with almost 30% of the crude oil imports, 47% of its coal, and over 40% percent of its gas imports coming from Russia.
Meanwhile, the US and the EU are aiming to find alternative sources of oil and put an end to their dependency on Russian oil. Negotiations of an Iran oil deal over its nuclear program have stalled though, as Russia, which is a signatory in the deal, seeks guarantees that its trade with Iran would not be affected by Russian sanctions. If the deal goes through, Iran could add as many as 900,000 barrels a day to global supplies, which might provide some relief to the energy crisis. The US, however, announced on Sunday that Russia should not expect any relief from sanctions to facilitate the implementation of the deal with Iran, causing further delay in the deal.
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