Crude At 3-Month Low – Below $100 With ‘Dive’ Almost 8%

Oil prices plunged 8% on Tuesday, closing below the psychological $100 mark, as the strengthening dollar fueled fears of a further hit to demand as fuel is priced in dollars, it becomes more expensive for holders of other currencies.

Concerns about a drop in demand were initially raised by the strict restrictions imposed by China on several cities aimed at dealing with the coronavirus pandemic, after the appearance in the country of the highly contagious mutation BA.5.2.1. of the Omicron strain. Concerns that are further intensified by the continued increase in cases in Shanghai, which has brought back to the fore fears of a return to lockdown.

“Recently, Chinese President Xi Jinping has strongly rejected any deviation from the country’s strict zero-Covid policy,” Carsten Fritsch, commodities analyst at Commerzbank, noted in a note, explaining: “This corresponds to downside risks to demand oil in China as restrictions on mobility are expected to tighten depending on the number of cases. And in the West, the combination of high energy prices and rising interest rates is fueling fears of a recession, which would also have a serious impact on oil demand.

For its part, after all, OPEC predicted that global oil demand will increase next year, but at a slower rate than this year, basing its assessment on the greater containment of the pandemic and the prediction that the global economy will remain on a growth path.

Specifically, the Organization stated in its monthly report that it expects global demand to reach 2.7 million barrels per day in 2023, while for this year it kept its estimate unchanged at 3.36 barrels.

Meanwhile, as White House National Security Adviser Jake Sullivan said, at this week’s meeting with Persian Gulf leaders in Saudi Arabia, President Biden will call for an increase in OPEC oil production.

Which of course remains doubtful, with Eurasia analysts pointing out that “Saudi Arabia is not expected to add significant volumes to its production in the near term, despite President Joe Biden’s upcoming visit, as Riyadh will prioritize commitment of managing the market and maintaining spare capacity in case of emergency.

Amid these headwinds, August West Texas Intermediate crude fell 7.9%, or $8.25, to settle at $95.84 a barrel on Tuesday. It was the lowest next-month contract close since April 11, according to Dow Jones Market Data.

Brent crude fell similarly, with the September contract losing $7.61, or 7.1%, to settle at $99.49 a barrel, also the lowest since April.