Oil dropped on Monday amid improving market sentiment on the German as well the European stock markets
On Monday, Brent crude oil fell by more than 4%. At the time of writing, May futures were trading at $111.94 per barrel. US West Texas Intermediate crude oil went down to $108.11 per barrel.
Notably, on Friday, March 25, the Brent benchmark soared to $120.65, while WTI exceeded $113.43. The reason for this jump was the news of a missile attack on oil facilities in Saudi Arabia.
Currently, the oil market is lacking triggers for further growth mainly due to EU unwillingness to impose sanctions on Russian oil. Apart from that, US officials alleviate market fears of supply deficit. They have already promised to release an additional 30 million barrels of oil from the strategic petroleum reserves.
Moreover, the US dollar climbed against its most major counterparts. The strengthening of the dollar does not favor the growth of oil. On Monday, the US dollar index measuring its value against a basket of six world currencies rose by 0.46% to 99.24. The US treasury yields are further rising amid growing expectations that the US Federal Reserve will accelerate the timeline for raising the interest rate. All these factors strengthen the dollar. According to Bloomberg, 2 percentage points have been priced in the rate hike by the end of 2022.
Today, oil prices are mainly affected by the news that the situation with the COVID-19 pandemic is worsening in China, the world's biggest oil consumer. Earlier, the Shanghai authorities announced that the eastern half of the city went into lockdown on Monday so the government could carry out the mass Covid-19 testing, which would last at least 4 days.
Despite the ongoing hostilities in Ukraine and the Western plans to ban Russia's energy supplies in the near future, Russian oil imports have not declined significantly causing oil prices to fall.
As for the premium buyers of Russian oil and possible financial losses, Kremlin spokesperson Dmitry Peskov has already denied the high probability of Russia's economic default. Peskov stated that any drop-out demand for Russian energy supplies to the EU could easily be replaced by exports to the eastern countries, namely to Southeast Asia, where there were as many oil consumers as in Western Europe. However, Peskov acknowledged that the European market had been extremely significant for Russia. Nevertheless, he noted that the global oil market was much more multifaceted than the EU market. It is evident that Russia's oil exports will decline slightly. However, it is unlikely to lose its revenues dramatically. Peskov made the above statement after the German government announced that it started to discuss the ban on Russian coal and oil imports this year.
Meanwhile, falling oil prices are currently contributing to the improvement of market sentiment in the German as well as European stock markets. On Monday, the European oil and gas sector index was up 0.04%, the automobile manufacturing index rose by 1.4%, and the chemical industry index added almost 1%. Consequently, the pan-European STOXX 600 index increased by 0.6%.