Oil price benchmarks fall below $100, first time in weeks

Oil prices tumbled more than 6% on Tuesday to their lowest in almost three weeks, as Russia suggested it would allow a revival of the Iran nuclear deal to go forward and as traders worried growing pandemic lockdowns in China could dent demand.

Both Brent and US crude futures benchmarks settled below $100 per barrel for the first time since late February. Since reaching 14-year highs on March 7, Brent has slid nearly $40 and WTI more than $30. Trading has been extremely volatile since Russia invaded Ukraine more than two weeks ago.

During the session, Brent futures plummeted $6.99, or 6.5%, to settle at $99.91 a barrel. US West Texas Intermediate (WTI) crude fell $6.57, or 6.4%, to settle at $96.44 a barrel. Brent fell as low as $97.44 and WTI hit $93.53, their lowest since Feb. 25.

On technical charts, both contracts moved the closest to oversold territory since December. They had been in overbought conditions during early March. Brent at one point topped $139 a barrel.

Russia is the world's largest exporter of crude and fuels. Numerous buyers have shunned Russian barrels since the invasion, sparking fears of a disruption of millions barrels of daily crude supply. Those fears now look overdone.

On Tuesday a Ukrainian negotiator said talks with Russia over a ceasefire and withdrawal of Russian troops from Ukraine are ongoing. The ensuing sell-off drove prices lower but many expect volatility to continue.

"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," said a research note from Kpler. "In this current situation, it is hard to see how crude oil prices are not being under-priced."

Also on Tuesday, Russia said it has written guarantees it can carry out its work as a party to the Iran nuclear deal, suggesting Moscow would allow a revival of the tattered 2015 pact to go ahead. 

The talks to revive the nuclear accord could lead to the lifting of sanctions on Iran's oil sector and allow Tehran to resume crude exports. They had stalled because of Russian demands. 

In the fallout from Russia's invasion, which it calls a "special operation," Western sanctions have failed to deter China and India from buying Russian crude.

The Organization of the Petroleum Exporting Countries said oil demand in 2022 faced challenges from the invasion and rising inflation as crude prices soar, increasing the likelihood of reductions to its forecast for robust demand this year.

China saw a steep jump in daily Covid-19 infections, which could slow the current pace of consumption as that nation shifts to lockdowns.

"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," said Louise Dickson, senior oil market analyst for Rystad Energy.

The US Federal Reserve is widely expected to raise interest rates by 25 basis points on Wednesday for the first time in four years to fight soaring inflation. This could strengthen the US dollar and dampen demand for oil and other commodities priced in greenbacks.

Preliminary data from the American Petroleum Institute showed US crude inventories rose by 3.8 million barrels for the week ended March 11 while gasoline inventories fell by 3.8 million barrels and distillate stocks rose by 888,000 barrels, according to sources, who spoke on condition of anonymity.

Official US government inventory data is due on Wednesday.