A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
London (CNN Business)After Russia invaded Ukraine, global oil prices experienced a dramatic spike. Just over a week ago, Brent crude leaped above $139 per barrel. Analysts warned prices could touch $185, then $200 as traders shunned Russian oil, pushing inflation even higher and adding huge strain to the global economy.
But there’s been a rapid reversal since then. Brent crude futures, the global benchmark, have cratered almost 30% from their peak. They’re trading below $100 per barrel after shedding another 7% on Tuesday.
What’s happening: The unusually sharp pullback has been driven by hopes that Saudi Arabia and the United Arab Emirates could boost oil supply, and that demand from China could drop due to new coronavirus restrictions in major cities. This would ease the squeeze on the market.
Yet analysts warn that we’re not out of the woods yet. Oil is still trading significantly above what it costs to produce it, and extreme swings are likely to persist at a moment of huge uncertainty.
“I wouldn’t rule out $200 a barrel just yet,” Bjørnar Tonhaugen, head of oil markets at Rystad Energy, told me. “It’s too soon.”
Following the invasion, oil prices skyrocketed as traders began to see Russian crude exports as untouchable. This sparked concerns about how that supply of between 4 and 5 million barrels per day could be replaced, especially as demand for fuel ramps up over the summer.
Over the past week, however, investors seem to be considering whether they went too far, too fast. The United Arab Emirates’ ambassador to Washington said that the country wants to increase oil production, sparking hopes that the Organization of the Oil Exporting Countries, or OPEC, could intervene after all. Meanwhile, Russia and Ukraine are still talking, even as the war rages.
Plus, China’s commitment to halting the spread of Covid-19, which has led to a lockdown in the tech hub of Shenzhen and new rules in Shanghai, could mean the country needs less energy in the short-term. China imports about 1
