Oil prices continue to fall despite increased demand

Oil fell sharply on Tuesday, adding to Monday's losses, as a number of factors impacting on sentiment, including Russian-Ukraine negotiations, a possible decrease in Chinese demand, and trade unwinding ahead of the Federal Reserve's projected rate hike on Wednesday.

“It’s really a market that traded entirely on fear,” Rebecca Babin, a senior energy trader at CIBC Private Wealth U.S., said of the initial spike higher amid supply fears. “Now, without a true change in the facts, we’re trading on the hope” that things won’t be as bad in the commodity market as initially feared.

“We don’t have a lot of clarity around what is really going to happen with crude supplies in the future as a result of this conflict,” she added.

During Tuesday morning trading on Wall Street, both West Texas Intermediate crude, the U.S. oil standard, and global benchmark Brent crude were trading below $100 a barrel, a distance from more than $130 a barrel only about a week ago.

After falling 5.78 percent for Monday, WTI plummeted 8.6 percent to $94.15 per barrel. Brent fell 8% to $98.35 per barrel on Tuesday, extending a 5.12% drop on Monday.

“Growth concerns from the Ukraine-Russia stagflation wave, and FOMC hike this week, and hopes that progress will be made in Ukraine-Russia negotiations” are weighing on prices, said Jeffrey Halley, senior market analyst at Oanda. “It seems like the old adage that the best cure for high prices, is high prices, is as strong as ever,” he added, noting that he believes the top is in for oil prices.

The day Russia invaded Ukraine, crude prices soared above $100 per barrel for the very first time in years, and prices continued to rise as the conflict raged on.

Early last week, WTI reached a high of $130.50 per barrel, while Brent reached a high of $139.26 per barrel. Traders were concerned that Russia's energy exports would be disrupted, so prices rose. So far, the United States and Canada have strictly prohibited Russian energy imports, while the United Kingdom has stated that it will phase out Russian imports.

However, other European countries that rely on Russian oil and gas have not taken similar steps.

While some self-sanctioning has occurred, analysts claim Russian energy is still on the search for buyers from all over including India.

An agreement with Iran might also bring new oil barrels to the market. According to Reuters, Russia's Foreign Minister Sergey Lavrov supports resuming the deal with Iran.

Oil has been particularly volatile recently, swinging back and forth between gains and losses with each new geopolitical development.

The rise in oil prices has driven gas prices to all-time highs. According to AAA, the national average for a gallon of gas was at $4.331 on Friday, the highest level ever. The figure has not been adjusted for inflation. Prices have since dipped slightly. The national average for a gallon of gas was $4.316 on Tuesday.

The oil price crash also means that some investors who rushed into investing in Oil stocks are now taking on a huge loss. If the demand stays up high, the stock price of oil-related stocks is expected to be higher.