Oil price crash: Joy for UK motorists as cost of barrel slumps to $104

Donald Trump slams Merkel over dependency on Russia oil

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Market trendsetter Brent crude futures fell by 12 cents (10p) to settle at $107.14 (£85.22) a barrel while the expiring front-month contract rose $1.75 (£1.39) to settle at $109.34 (£86.95) a barrel. U.S. West Texas Intermediate crude fell 67 cents (53p) to settle at $104.69 (£83.26) a barrel.

It comes as oil prices have been hit by the U.S. heating oil contract that fell by more than 20 percent at one point on the day of its expiration.

The front-month U.S. heating oil contract , which is a proxy for diesel prices, rose to a record high of $5.8595 (£4.66) a gallon before crashing as low as $4.4067 (£3.51) a gallon.

Diesel futures have soared as investors have become nervous about global supplies following Russia’s invasion of Ukraine.

However Andrew Lipow of Lipow Oil Associates in Houston said that the fall in prices could be a temporary blip due to the heating contract issue.

He said: “The fireworks were all in the expiring diesel contract.

“Today’s expiry is especially volatile and may not be reflective of actual tightness.”

It is likely that prices will begin to rise again soon due to the global concern about supply among investors given the ongoing war in Ukraine.

For example, Futures rose this week on the increased likelihood that Germany will join other European Union member states in an embargo on Russian oil. 

Despite pausing the Nord Stream 2 pipeline Berlin has up to now been cautious about supporting a full embargo on Moscow as it largely relies on imported Russian oil.

Russian oil production could fall by as much as 17 percent this year, an economy ministry document seen by Reuters showed on Wednesday.

This is likely to occur partly because of western sanctions but also because of the decision by Moscow to insist all oil be bought in Russian rubles.

The ruble is an unstable currency particularly at the moment due to western sanctions, despite incorrect doomsday predictions that the Russian economy would collapse. 

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It is an unpopular currency with investors due to its volatility and poor exchange value.

There are also concerns about demand from China which could mean that prices begin to fall again.

Beijing is continuing its Dynamic Zero Covid response to the pandemic based around lockdowns, mass testing, contract tracing and quarantining of positive cases.

These had led to an extensive lockdown in the Chinese economic capital Shanghai and the possibility of similar measures being introduced in Beijing itself.

This has already led to a decrease in demand which could hit prices even further if these measures continue.

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