Oil prices have sunk back below $100 a barrel, just days after soaring to recent highs in the midst of the Russian invasion of Ukraine.
As of Tuesday evening, the West Texas Intermediate (WTI) crude oil price, which sets the U.S. standard price, has dropped to about $95 per barrel. The drop is a precipitous slide from last week, when the WTI price rose to more than $125 a barrel after the Biden administration imposed an embargo on Russian imports of oil amid the ongoing Russian invasion of Ukraine. At the same time, the Brent crude price, which sets the international price standard, dropped down to just under $99 per barrel. The international price soared to $130 a barrel early last week, then crossed that threshold Wednesday when the United Kingdom announced its own oil embargo on Russia.
The drop in prices was caused by a number of factors. A widespread COVID-19 lockdown in the Shenzhen province of China and the resulting drop in oil demand, combined with progress in the negotiations between Ukraine and Russia, as well as a possible increase in interest rates by the Federal Reserve as a hedge against inflation, were all cited as reasons for experts breathing a sigh of relief.
“It seems like the old adage that the best cure for high prices, is high prices, is as strong as ever,” Oanda senior market analyst Jeffrey Halley told CNBC, saying that the reasons for the dip included “growth concerns from the Ukraine-Russia stagflation wave, and [Federal Open Market Committee] hike this week, and hopes that progress will be made in Ukraine-Russia negotiations.”
The drop in oil prices also means a drop in gas prices, which soared to record highs last week. “WTI $98/bbl… the drop in #gasprices should accelerate and if oil stays in double digits the national average could decline under $4/gal in the weeks ahead,” GasBuddy Chief Petroleum Analyst Patrick De Haan tweeted Monday. “Stations lost their shirt on the way up, but now margins are improving and they will start passing the discounts on to you.”
WTI $98/bbl… the drop in #gasprices should accelerate and if oil stays in double digits the national average could decline under $4/gal in the weeks ahead. Stations lost their shirt on the way up, but now margins are improving and they will start passing the discounts on to you.
— Patrick De Haan ⛽️📊 (@GasBuddyGuy) March 15, 2022
Despite the drop in prices, oil and gas experts were uncertain about how long the relief would last.
“It bears reminding that the cost of oil accounts for about 50% of what drivers pay at the pump,” AAA spokesperson Andrew Gross said in a statement Monday. “This war is roiling an already tight global oil market and making it hard to determine if we are near a peak for pump prices, or if they keep grinding higher. It all depends on the direction of oil prices.”
Experts also warned that a number of factors, including summer travel demand and the switch to more expensive summer blends of gasoline, would inevitably lead to prices at the pump soaring again.
“There are things on the horizon that will lead to gasoline prices going higher, namely the switch over to summer blends of gasoline, which starts tomorrow on the West Coast and has to be completed by mid-April on the East Coast. Those blends are more difficult to refine, more complicated to distribute,” AAA Northeast Public Affairs Senior Manager Robert Sinclair told Yahoo Finance. “So that leads to the price going up. And as the weather gets better, people want to get out and get rid of the COVID doldrums and take a trip somewhere. And 85% to 95% of summer holiday trips and summer vacation trips are taken by motor vehicles. So demand goes up. And with it, price.”