Oil Drops on Risk Off Sentiment

Oil declined as broader market sentiment soured and mild winter temperatures in may parts of the globe eased fears of an energy crisis.

West Texas Intermediate fell 4.2% to settle below $77 a barrel, the biggest drop since mid-November. Oil fell as equity market losses accelerated and the dollar rose the most in nearly three weeks, making commodities priced in the currency more expensive.

Meanwhile, above-average temperatures in the US and Europe eased fears of an energy crunch that had been predicted to trigger outages. Diesel futures plummeted and natural gas fell to an 11-month low.

Crude eked out a small gain in 2022, a year that was marked by huge volatility. Prices surged in the wake of Russia’s invasion of Ukraine, only to lose ground amid concerns about a global recession. In the new year, investors are watching for Russia’s reaction to energy sanctions and the fallout in China from its swift pivot away from Covid Zero. A question mark also remains over whether the Organization of Petroleum Exporting Countries and allies will cut supply again.

Prices:

WTI for February delivery fell $3.33 to settle at $76.93 a barrel in New York.
Brent for March settlement dropped $3.81 to settle at $82.10 a barrel.

Despite the day’s losses, there are some signs traders have grown more optimistic about the market’s direction as China emerges from Covid’s grip. Last week, money managers boosted net-bullish bets on the Brent benchmark by the most since July 2021. Hedge fund trader Pierre Andurand has been among those forecasting a surge in oil demand if the world fully emerges from Covid restrictions.