Oil prices dropped below $100 a barrel on Tuesday as global investors are worried rising COVID-10 infections in China and a stronger dollar would affect demand for the commodity.
Brent crude oil, a global benchmark for Nigerian oil, declined by $7 to $99.10 a barrel on Tuesday at 7:45 pm Nigerian time while the U.S. West Texas Intermediate (WTI) dipped by $8 to $93.26 a barrel.
The sharp decline followed of volatile trading in which investors have sold oil positions on worries that aggressive interest rate hikes to stem inflation will spur an economic downturn that will pull the rug out from oil demand.
Oil prices are facing extreme pressure “as a defensive posture continues with consumer sentiment still in a depressed mode along with a COVID re-surface in China,” said Dennis Kissler, senior vice president for trading at BOK Financial.
A record high dollar was triggering more selling liquidation, Kissler added. Oil is generally priced in U.S. dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.
The dollar index , which tracks the currency against a basket of six counterparts, earlier on Tuesday climbed to 108.56, its highest level since October 2002. Investors tend to view the dollar as a safe haven during market volatility.
Investors have been dumping petroleum-related derivatives at one of the fastest rates of the pandemic era as recession fears intensify. Hedge funds and other money managers sold the equivalent of 110 million barrels in the six most important petroleum-related futures and options contracts in the week to July 5.
Close-to-close volatility on Brent and WTI is at its highest level since early April. Lower liquidity typically results in a more volatile market with drastic price swings.
Renewed COVID-19 travel curbs in China weighed on oil prices too, with multiple Chinese cities adopting fresh restrictions, from business shutdowns to broader lockdowns, in an effort to rein in new infections from a highly infectious subvariant of the virus.