Oil price crash: Relief for UK motorists as oil prices fall below $100 – ‘Under-priced!’

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There are hopes the record high petrol prices at British pumps will recede after the global benchmark Brent Crude came in at $98 a barrel on Tuesday. It comes as hopes of a ceasefire in the ongoing conflict in Ukraine took a boost after positive comments from negotiators helped stabilise the market and calm investors.

Despite some stabilisation, a research note from Kpler has argued the market will remain volatile.

They said: “Whilst reports of promising talks are to be welcomed, it is hard to see how either side at this stage would be prepared to make concessions that would be acceptable to any party.

“In this current situation, it is hard to see how crude oil prices are not being under-priced.”

Brent futures dropped $6.99, or 6.5 percent, to settle at $99.91 a barrel.

US West Texas Intermediate (WTI) crude fell $6.57, or 6.4 percent, to settle at $96.44 a barrel.

Many investors have shunned Russian oil supplies since the invasion of Ukraine last month, leading to concerns about supply which drove up prices sharply, with Brent peaking at $139-a-barrel at one point.

However, now these fears seem overdone with Moscow indicating that it will honour its existing contracts and help work towards an Iranian nuclear deal.

A revived Iranian nuclear deal could help lift sanctions on Tehran and lead to increased oil supply which could cause prices to decrease further. 

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However, there is the possibility that the current fall in prices could be partially reversed by the latest coronavirus outbreak in China.

In contrast to much of the rest of the world, Beijing has implemented a dynamic Zero Covid strategy based on strict lockdowns and mass testing which have limited case numbers and deaths.

As Louise Dickson, senior oil market analyst for Rystad Energy argues however, these continued lockdowns could limit supply from China driving prices up.

She said: “It is estimated that a severe lockdown in China could put 0.5 million bpd of oil consumption at risk, which would be further compounded by fuel shortages due to inflated energy prices.” 

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The comments come as Prime Minister Boris Johnson will travel to Saudi Arabia and the United Arab Emirates later this week.

Mr Johnson is widely expected to use the trip to encourage the Gulf states to boost their oil production.

This would not only boost global supply and potentially stabilise prices but would help Western countries end their dependency on Moscow for oil.

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