Federal and Ontario governments commit millions for Honda plant upgrades to manufacture hybrid cars

Canada’s prime minister and Ontario’s premier both say manufacturing hybrid vehicles at an Ontario Honda plant will help ensure good auto jobs into the future.

Justin Trudeau and Doug Ford were in Alliston, Ont., today to formally announce the $131.6-million each government will spend to support upgrades at the Honda manufacturing plant that will eventually make hybrid vehicles.

Honda Canada Inc. says retooling the plant to build the 2023 CR-V and CR-V Hybrid vehicles will cost $1.4-billion over six years.

Trudeau says the development will help create jobs and contribute to a sustainable economic recovery from the pandemic.

Ford says the announcement will help grow the province’s auto sector and ensure the “cars of the future” will be built in Ontario.

Ford has said he wants to ramp up electric vehicle manufacturing but his government has not committed to offering incentives like rebates to help people buy them.

Honda Motor Co’s HMC-N Canadian manufacturing arm will invest C$1.38 billion ($1.09 billion) over six years to upgrade its plants in Ontario as the automaker gears up to make its new hybrid SUV for the North American market.

The investment would make the facility the biggest plant in the region for the 2023 CR-V Hybrid crossover and includes equal grants of C$131.6 million from the governments of Canada and Ontario, Honda of Canada Mfg said on Wednesday.

The move comes at a time when automakers globally have sharpened their focus on producing environmentally friendly vehicles in response to rising demand.

The investment would also help the Japanese automaker meet its goal of raising the ratio of electric vehicles and fuel cell vehicles to 100% of all sales by 2040.

Having started production in 1986, Honda of Canada Mfg has the capacity to produce more than 400,000 vehicles and 190,000 engines annually.

LME nickel trading halted in chaotic market resumption

The London Metal Exchange had hoped to get the global market for nickel motoring again on Wednesday after a week in limbo. It didn’t work out as planned.

The world’s oldest metals exchange was forced to halt trading on its electronic system within a minute of opening due to a technical glitch and when it resumed in the afternoon there very few trades.

The shambolic reopening piled more pressure on the LME, which is already facing a hail of criticism for suspending the market after a wild spike in prices last week left some traders facing billions of dollars in losses.

LME nickel prices are used as a reference for deals between end-users of the metal and producers and the disorderly market resumption left some traders questioning whether participants might look for alternative venues.

“This is difficult for the market and all its participants,” said Michael Widmer, head of commodities research at Bank of America.

Nickel, the devil’s metal with a history of bad behaviour

“If you are pricing off the LME contract but you don’t have a reference price, if you are buying your raw materials on an LME price, if you have to manage your cash flows – it’s difficult,” he said.

By 12:25 p.m. ET, the LME’s three-month nickel contract had traded just 249 lots, or 1,494 tonnes, on track to be the slowest day since November 2006.

On March 7, 26,150 lots, or 156,900 tonnes, changed hands.

The LME nickel market was suspended a day later after China’s Tsingshan Holding Group bought large amounts of nickel, propelling the metal up more than 50% in a matter of hours to a record above $100,000 a tonne, sources have said.

To prevent wild price swings when trading resumed on Wednesday, the LME introduced limits of 5% above or below an adjusted closing price of $47,986, but technical issues allowed some trades to go through under the lower limit of $45,590.

The exchange said trades executed on the LMEselect system at the lower limit would remain, but any below would be canceled.

“What a mess. It’s embarrassing, disorderly doesn’t even begin to describe it,” one metals trader said. “People will start thinking about moving away from the LME.”

‘COMPLETELY DISLOCATED’

The price of nickel, which is used to make stainless steel and is a key material for electric vehicle batteries, had been rising steadily even before the conflict in Ukraine ramped prices up even further and triggered last week’s chaos.

Russia accounts for about 10% of global nickel output and traders were concerned supplies could be constrained by Western sanctions on Moscow.

In the LME’s official outcry session on Wednesday, which is conducted with hand gestures in a trading ring in London, prices also hit the lower limit but when electronic trading resumed at 1400 GMT.

“People are waiting to be comfortable with the LME price,” said Robert Montefusco at broker Sucden Financial. “Until that happens it’s hard to see much liquidity coming back into the market.”

Nickel trading on the Shanghai Futures Exchange was halted for one day last week but has since continued while the LME contract has been out of action. Nickel traded in Shanghai at 235,200 yuan a tonne, or around $37,000, on Wednesday.

Sources said there was a lot of nickel on offer on the LME’s system earlier in the day as traders were expecting prices to fall towards those in Shanghai, especially in light of recent Tsingshan developments.

Tsingshan said this week it had come to a standstill agreement with a group of banks, which fueled expectations that it would longer need to buy metal immediately to cover its bets on lower prices.

The bearish sentiment was reinforced by a Wednesday report from the state-backed Shanghai Securities News that Tsingshan had agreed with two companies to swap its nickel with a purer form of the metal to close out its large LME positions.

“LME nickel is on its own, completely dislocated from the rest of the world,” said Saxo Bank analyst Ole Hansen. “For now, let’s say Shanghai nickel is the global market because at least it is trading.”

WHY 5%?

The LME said it was now considering widening its 5% limit for Thursday’s nickel trading to, “allow a resumption of prices in a smaller number of days, while ensuring that trading continues to remain orderly.”

The LME also introduced 15% trading limits for all of its other main metals including copper and aluminum this week, the first time in its 145-year history that it has put limits on outright contracts.

“The big questions is why did the LME set a 5% limit for nickel when they put 15% on other metals. If they had left this alone it would have probably gone down around where Shanghai is,” said Malcolm Freeman at Kingdom Futures.

When Shanghai resumed nickel trading last week, the exchange introduced trading limits of 17%.

Besides suspending nickel trading for only the second time in its history, the LME also canceled all trades on March 8 and extended deadlines for those with obligations to deliver physical metal against its contracts.

The LME, the world’s oldest and largest market for industrial metals, is owned by Hong Kong Exchanges and Clearing Ltd.

Dow rallies to the highs of the session, up 400 points on hopes for Russia-Ukraine ceasefire

The S&P 500 rallied for a second day, hitting the highs of the session on a report that Ukraine and Russia are making strides toward a peace agreement.

The two countries have made “significant progress” on a peace plan and Russian withdrawal, the Financial Times reported, citing three people.

The broad market index rose 1.8%, while the Dow Jones Industrial Average climbed 494 points, or 1.4%. The Nasdaq Composite jumped 2.1%.

Before the FT report, stocks were gaining on hopes that some sort of ceasefire was close. Ukrainian President Volodymyr Zelenskyy said a peace agreement was beginning to “sound more realistic” in an address to the nation Tuesday. Russian Foreign Minister Sergey Lavrov told the BBC there was “some hope of reaching a compromise.” Russian State media quoting the Kremlin echoed similar sentiments overnight.

The war between Ukraine and Russia has sent ripples through global financial markets, pushing commodity prices sharply higher and stocks lower. However, some commodities have cooled off in recent days, while the U.S. equity market tries to find its footing.

U.S. oil traded lower on Wednesday following the FT report, after topping a multiyear high of $130 earlier this month.

Micron Technology was among the best-performing S&P 500 stocks, gaining more than 4%. Starbucks shares also climbed 6% after an upgrade from JPMorgan, while Dow member Boeing advanced more than 2.7%.

Several Chinese stocks rocketed more than 20% higher after China signaled its support for overseas listings, after days of worries around delisting led them to tumble. Pinduoduo surged 34% and DiDi Global jumped 38%. The China Internet ETF is on pace for best day ever, up more than 25%, after its worst day ever on Monday.

Stocks were rallying in part on signs that a ceasefire could be possible in the Russia-Ukraine war.

Stocks, meanwhile, are coming off a stellar session in which the Dow surged nearly 600 points, while the S&P 500 snapped a three-day losing streak.

In economic data, consumers continued to spend in February through at a slower pace than expected, according to a Commerce Department report Wednesday. Advance retail sales grew 0.3% for the month, slightly below the 0.4% Dow Jones estimate.

Big Fed decision ahead

To be sure, all eyes are on the Fed on Wednesday, as the central bank wraps up a key two-day policy meeting.

The Fed is widely expected to raise rates by a quarter-point, the first hike since 2018. Watchers are also expecting the central bank to offer a new quarterly forecast that could indicate five or six more hikes this year.

“My guess is it’s going to sound a little more hawkish than people want it to sound, and that’s going to be a little tough to digest, particularly in the fixed income markets,” David Zervos, chief market strategist at Jefferies told CNBC’s “Closing Bell” on Tuesday. “I think the equity market might digest it a little bit better, but it’s going to be a tough swallow.”

The Fed is expected to announce an interest rate decision and economic projections at 2 p.m. on Wednesday, which will followed by a briefing from Federal Reserve Chair Jerome Powell.

Loblaw is buying Lifemark Health Group for $845-million in biggest deal yet to expand presence in healthcare services

Loblaw Cos. Ltd.L-T +0.11%increase is buying health clinic owner Lifemark Health Group for $845-million, the company’s largest deal yet to expand its presence in the healthcare services market.

Lifemark, which is owned by Audax Private Equity, has more than 300 clinics across the country providing services including physiotherapy and chiropractic treatments, massage therapy, occupational therapy and mental health care.

The acquisition is part of a larger strategy for Loblaw, which owns the Shoppers Drug Mart pharmacy chain.

“Shoppers over the past couple of years has been really focusing more on becoming a healthcare services company, with the role of pharmacists changing,” Shoppers president Jeff Leger said in an interview on Monday. “We saw that explode during the pandemic with vaccination, testing, but also helping Canadians who didn’t have access to care during that period of time. … We certainly view ourselves as more than a pharmacy.”

The company has in recent years been investing in other businesses in a bid to own a larger piece of the Canadian healthcare market.

For example, Shoppers Drug Mart has experimented with offering services such as cosmetic dentistry and dermatology in some locations, and in the past two years, the company has opened six clinics in Ontario under the Health Clinic by Shoppers brand. In 2016, Loblaw acquired software firm QHR Corp., which offers electronic medical record-keeping for doctors, for roughly $170-million. In 2020, the company invested $75-million for a minority stake in telemedicine provider Maple Corp., a Toronto startup that saw demand spike for its online medical services during the COVID-19 pandemic.

Loblaw’s controlling shareholders, the Weston family, have participated in two financing rounds for Canadian digital health startup League Inc., in 2018 and 2019, through their private holding company Wittington Investments. And in 2020, Loblaw partnered with League to build its PC Health app, which provides services to users such as live chats with registered nurses and “care navigators” providing healthcare referrals. The retailer also tied its PC Optimum loyalty program to the new app, offering points for customers who used it to complete fitness challenges, or who purchased health and wellness-related items such as vitamins and thermometers.

Mr. Leger said there has been “good usage” of the app so far, but did not disclose user numbers. He said the company has seen interest in navigating access to healthcare with digital tools. Lifemark was one of the company’s first partner clinics that allowed appointment booking through the PC Health app.

“We think there’s a really interesting link there with the customers we’re seeing on the pharmacy side,” he said.

For example, pharmacists see many customers who are managing issues with both chronic and acute pain, either with over-the-counter or prescription drugs.

“But we know that sometimes the recovery process can or should require some physiotherapy – I just had some experience with this last summer, with a bike crash,” Mr. Leger said. “There’s an ability for people to get advice from the pharmacy side on using medications, but also maybe transition to services from physio or a kinesiologist.”

The deal is subject to regulatory approvals, and the company expects it to close in the second quarter of this year.

Canada’s inflation rate hits three-decade high in February as central banks look to tame spiking price pressures

Canada’s inflation rate hit a new three-decade high in February as consumers paid sharply more for gasoline and groceries, highlighting the tough task ahead for central bankers looking to calm the situation.

The Consumer Price Index rose 5.7 per cent in February from a year earlier, up from January’s 5.1-per-cent pace, Statistics Canada said Wednesday. It was the 11th consecutive month that inflation has surpassed the Bank of Canada’s target range of 1 per cent to 3 per cent.

Shelter costs in Canada rose 6.6 per cent, the largest annual change since 1983. Groceries rose 7.4 per cent, the highest in more than a decade. And gas prices jumped 6.9 per cent in the month of February alone as the Russia-Ukraine war led to volatility in energy markets.

“If it feels like everything is getting more expensive, it’s because it is,” said Royce Mendes, head of macro strategy at Desjardins Securities, in a note to clients.

Earlier this month, the Bank of Canada raised its benchmark interest rate for the first time since 2018, and its U.S. counterpart, the Federal Reserve, is expected to follow suit on Wednesday afternoon. The U.S. inflation rate hit 7.9 per cent in February, the highest in 40 years.

Central bankers could be forced to tighten monetary policy in aggressive fashion to dampen inflation, which is running higher for longer than they previously assumed. In a speech last week, Bank of Canada Governor Tiff Macklem said steep inflation is spreading to more products and services, and he would not rule out a rate hike of 50 basis points later this year. (A basis point is 1/100th of a percentage point.) A hike to that degree has not occurred in over 20 years.

The latest threat to consumer prices is the Russia-Ukraine war, which has led to surging costs of wheat, gasoline, fertilizer and other products, on fears of supply shortages. There is, however, very little that central bankers can do to calm volatility in global commodity markets.

The concern is that consumers, who are sensitive to price hikes at gas pumps and supermarkets, come to think that steep inflation is a long-term reality.

Inflation can be self-fulfilling, in that companies set prices and workers negotiate wages in anticipation of expected costs. Their expectations have risen substantially for the next couple years, but remain “well anchored” over a five-year horizon, the central bank has said.

Not everyone agrees. The Bank of Nova Scotia said Tuesday that inflation expectations have already become unmoored. “This recent de-anchoring of expectations means that the bank’s monetary policy will need to be more aggressive to bring inflation back to target,” read the report, which was co-written by a former research director at the Bank of Canada.

Scotiabank estimates the Bank of Canada’s policy rate – now at 0.5 per cent – will end the year at 2.5 per cent, by far the most aggressive course of tightening projected by a major bank.

In turn, that will heap pressure on a Canadian consumer that’s loaded up on debt over the pandemic. The household debt burden – more formally known as the ratio of credit market debt to disposable income – rose to 186 per cent in the fourth quarter, the highest on record. The pandemic debt surge has been entirely driven by demand for residential mortgages.

Wholesale sales rose 4.2 per cent in January: Statscan

Statistics Canada says wholesale sales rose 4.2 per cent in January to $79.8 billion, helped by gains in sales of building material and supplies, personal and household goods, and machinery, equipment and supplies.

The agency says it was the sixth consecutive month wholesale sales have increased as five of the seven subsectors tracked by Statistics Canada climbed higher in January.

Sales of building material and supplies rose 14.0 per cent to $14.1 billion as exports of lumber and sawmill products gained 16.3 per cent and exports of plastic and foam building and construction materials rose 20.1 per cent.

Personal and household goods sales rose 10.6 per cent to $12.2 billion, while sales in the machinery, equipment and supplies subsector gained 6.6 per cent at $16.8 billion.

The motor vehicle and motor vehicle parts and accessories subsector fell 5.8 per cent to $11.1 billion in January.

In volume terms, overall wholesale sales rose 3.8 per cent in January.

U.S. stock futures are flat ahead of Wednesday’s Fed meeting

Stock futures were flat in overnight trading after the major indexes rallied and oil prices tumbled below $100 a barrel ahead of Wednesday’s Federal Reserve meeting.

Futures on the Dow Jones Industrial Average dipped 40 points, while S&P 500 futures fell 0.1% and Nasdaq 100 futures were flat.

The gains came ahead of a critical Federal Reserve meeting on Wednesday, where the agency is widely expected to raise rates by a quarter-point, the first hike since 2018. Watchers are also expecting the central bank to offer a new quarterly forecast that could indicate five or six more hikes this year.

“My guess is it’s going to sound a little more hawkish than people want it to sound, and that’s going to be a little tough to digest, particularly in the fixed income markets,” David Zervos, chief market strategist at Jefferies told CNBC’s “Closing Bell” on Tuesday. “I think the equity market might digest it a little bit better, but it’s going to be a tough swallow.”

The Fed is expected to announce an interest rate decision and economic projections at 2 p.m. on Wednesday, which will followed by a briefing from Federal Reserve Chair Jerome Powell.

Meanwhile, oil prices cooled off on Tuesday, dropping below $100 after topping a multiyear high of $130 earlier this month, while commodities such as gold, which have been volatile in recent days, fell 1.59%.

The U.S. and global oil benchmarks both settled below $100 a barrel, with West Texas Intermediate and Brent crude falling 6.4% and 6.5%, respectively. The fallback put pressure on some energy stocks, including Exxon and Chevron, which sank about 6% and 5% on Tuesday.

During regular trading on Tuesday, the Dow Jones Industrial Average gained 599 points, or 1.8%, while the S&P 500 jumped more than 2.1%, and broke a three-day losing streak. Meanwhile, the tech-heavy Nasdaq Composite rose about 2.9%.

“U.S. stocks are trading higher Tuesday as investors react positively to a ‘Goldilocks’ mix of economic reports (lower PPI and eroding Empire survey) and another sharp drop in oil prices — all suggesting that the path to sustained high inflation may be less certain than some think,” wrote Goldman Sachs analyst Chris Hussey in a note Tuesday.

Tuesday’s market rally was broad-based, led by sharp gains among technology stocks. Microsoft rose nearly 4%, while chipmakers Nvidia and Advanced Micro Devices climbed roughly 8% and 7%. Peloton rose 12% after Bernstein initiated coverage of the stock with an “outperform” rating, and Coupa Software plummeted 19% on the back of a weaker-than-expected outlook.

Investors continued to monitor the ongoing situation in Ukraine on Tuesday, as Kyiv announced a 35-hour curfew after Russian missile strikes hit some residential buildings. Meanwhile, President Joe Biden signed a government funding bill that included $13.6 billion in aid to Ukraine.

Some European leaders also announced they will visit Ukraine to meet with the country’s president and prime minister, while Russia is expected to default on its debt for the first time in decades as it nears a Wednesday deadline for two payments.

Traders continued to keep an eye on the situation in China, where one of the country’s largest manufacturing hubs has shut down amid rising Covid-19 cases.

Investors will be watching Ukrainian President Volodymyr Zelenskyy address Congress on Wednesday and are awaiting economic data, including the retail sales report for February.

China says it wants to steer clear of U.S. sanctions over Russia’s invasion of Ukraine

“China is not a party to the crisis, nor does it want the sanctions to affect China,” Wang said Monday during a call with Spanish counterpart Jose Manuel Albares to discuss the crisis in Ukraine.

“China has the right to safeguard its legitimate rights and interests.”

His comments are seen as one of Beijing’s most explicit statements yet on the unprecedented barrage of international sanctions imposed against Russia’s corporate and financial system. The measures came in response to the Kremlin’s full-scale offensive into Ukraine, which began Feb. 24.WATCH NOWVIDEO03:24U.S. warns China about helping Putin with his invasion

The White House has warned China not to provide Russia with an economic lifeline as the Kremlin steps up its onslaught on Ukraine. The U.S. says it fears China, a key strategic ally of Moscow, may seek to cushion the impact of measures designed to destroy Russia’s economy if the war continues.

There are concerns among market participants that Chinese companies could soon become embroiled in financial penalties after reports that Moscow had asked Beijing for assistance to support its Ukraine invasion.

China has denied these reports, while Russia has said it did not request military aid from Beijing.

Since Russia’s attack on Ukraine, Beijing has refused to call it an invasion and said China would maintain normal trade with both countries. China has not joined the U.S., EU and other countries’ sanctions on Russia.

Officials from the U.S. and China met on Monday to discuss a range of bilateral issues, including Russia’s war with Ukraine. The talks, which were held in Rome, spanned seven hours and were described as “intense” by one senior administration official.

The U.S. has warned of consequences for any country that provides Russia with support amid the Kremlin’s conflict with Ukraine.WATCH NOWVIDEO02:55U.S.-China talks on Ukraine war have rendered ‘very little progress’: Think tank

“We are watching very closely to the extent to which the PRC [People’s Republic of China] or any country in the world provides support material, economic, financial, rhetorical otherwise, to this war of choice that President [Vladimir] Putin is waging against the government of Ukraine, against the state of Ukraine and against the people of Ukraine,” State Department spokesman Ned Price said at a news briefing Monday.

“We have been very clear both privately with Beijing and publicly with Beijing that there would be consequences for any such support,” Price said.

Russian Finance Minister Anton Siluanov said Sunday that the Kremlin was counting on China to help it withstand the fallout from global economic measures imposed against Moscow, Reuters reported.

In speaking with Spain’s Albares, China’s Wang reaffirmed Beijing’s long-held stance of objecting to unilateral sanctions outside of the United Nations.

“China always opposes the use of sanctions to solve problems, and even more opposes unilateral sanctions that have no basis in international law, which will undermine international rules and bring harm to the people’s livelihood of all countries,” Wang said.

Galen G. Weston sets out on a new vision for Loblaw, far from the bread wagon days of his family’s roots

Galen G. Weston spent the past year on a corporate diet, slimming down holdings in family-controlled grocery, baking and real estate businesses.

On Monday, Mr. Weston bulked up. The chair and president of Loblaw Cos. Ltd. L-T -1.34%decrease paid $845-million for Lifemark Health Group, a cross-Canada chain of more than 300 physiotherapy, massage, chiropractic and mental-health clinics. Loblaw will roll Lifemark into its Shoppers Drug Mart division and its PC Health online platform.

Buying Lifemark from Boston-based Audax Private Equity gives Mr. Weston a national health and wellness business. Audax bought the business six years ago from pharmacy chain CareRx Corp. for $245-million, then expanded through a series of small acquisitions. Audax’s growth strategy included striking an online booking partnership with Shoppers last November – a first date for the marriage announced on Monday.

Mr. Weston is setting out a new vision for his family’s holdings by acquiring Lifemark while at the same time overseeing Weston-controlled Choice Properties REIT’s sale last week of long-held office buildings for $749-million and parent company George Weston Ltd.’s disposal of an even longer-owned baking business last year for $1.6-billion.

The 49-year-old executive is justifiably proud of corporate roots dating back to 1882, when his great grandfather began delivering fresh bread from wagons. However, he’s far from wedded to that heritage.

Looking back, it’s clear that Mr. Weston began putting his stamp on the family’s holdings in 2017, when he became chair and chief executive officer of George Weston. On his watch, the holding company narrowed its focus to two businesses: retailing under the Loblaw banner and real estate, through Choice Properties. The Toronto-based REIT is one of the country’s largest owners of malls and industrial properties.

The drive to streamline operations picked up steam after patriarch W. Galen Weston – the current chair’s father – passed away last April, with the sale of the baking business and family-owned British luxury department store operator Selfridges, sold in December for an estimated $6.9-billion.

Mr. Weston’s guiding philosophy is spelled out on Choice Properties’ website. The first words that appear are: “Creating enduring value for generations.”

Building long-term wealth means doing more than raising money by exiting a low-growth business such as baking, as Mr. Weston did last year. It means pouring that cash back into the business, trying to position retail and real estate operations for a new generation of customers.

Prior to buying Lifemark, Loblaw invested $75-million in telemedicine company Maple Corp. in 2020, and acquired medical records company QHR for $170-million in 2016. The series of acquisitions, and the arrival of a Lifemark executive team that built their business through M&A, show Mr. Weston sees growth potential in health and wellness that doesn’t exist in grocery stores.

Lifemark is the largest domestic player in a fragmented physiotherapy and rehabilitation space; its executives estimate it has about a 7-per-cent share of an $11-billion market. In a report, analyst Patricia Baker at Bank of Nova Scotia said: “This transaction represents an opportunity for Shoppers and Loblaw to participate in growth associated with rolling up a related health care market segment with a higher-margin profile and to address a new market segment.”

Loblaw used CIBC Capital Markets and law firm Borden Ladner Gervais LLP as its advisers, while Lifemark and Audax were advised by M&A investment boutique Harris Williams and law firms Blake, Cassels & Graydon LLP and Kirkland & Ellis LLP.

Where else will Mr. Weston put capital to work? Bulking up on warehouses and apartment buildings is likely in the cards at Choice Properties. As part of last week’s $749-million sale of six buildings in downtown Toronto, Vancouver and Montreal – Allied Properties REIT was the buyer – Choice Properties CEO Rael Diamond made it clear the company was exiting office properties to focus on retail, industrial and a “growing residential platform.”

Share prices at George Weston, Loblaw and Choice Properties are all up sharply over the past year, as Mr. Weston retooled their holdings. It’s no longer the great grandfather’s baking company, but investors have been well-rewarded by his heir’s strategy.

Oil plunges over 7 per cent on easing supply concerns, China COVID cases

Oil prices tumbled more than 7% to their lowest in almost three weeks on Tuesday as supply disruption fears eased and surging COVID-19 cases in China spurred demand concerns.

Brent futures fell $7.89, or 7.4%, to $99.01 a barrel by 11:51 a.m. EDT (1551 GMT), while U.S. West Texas Intermediate (WTI) crude dropped $8.11, or 7.9%, to $94.90 a barrel.

Brent fell as low as $97.44 and WTI hit $93.54, their lowest since Feb. 25.

Both contracts moved the closest to oversold territory since December. They had been in overbought conditions as recently as early March, when the benchmarks reached 14-year highs after Russia’s invasion of Ukraine. Since then, Brent has lost about $40 and WTI has fallen by more than $30.

The steep decline on Tuesday followed a statement from Russian Foreign Minister Sergei Lavrov, saying that Moscow is in favor of the 2015 Iran nuclear deal resuming as soon as possible.

The talks to revive the nuclear accord, which would lead to sanctions on Iran’s oil sector being lifted and allow Tehran to resume crude exports, had recently stalled because of Russian demands.

At the same time, a Ukrainian negotiator said on Tuesday that talks with Russia over a ceasefire and withdrawal of Russian troops from Ukraine are ongoing.

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

Tuesday’s steep price decline surprised several analysts.

“Whilst reports of promising talks (between Russia and Ukraine) 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.”

Further adding price pressure, China saw a steep jump in daily COVID-19 infections, raising renewed worries about the recovery from the coronavirus pandemic.

China’s daily oil processing rate dropped 1.1% in the first two months of 2022 from a year ago, to the lowest since December 2020, as independent refiners scaled back operations after Beijing slashed their crude oil import quotas.

Meanwhile, the U.S. 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. Such a move could strengthen the U.S. dollar and dampen demand for commodities priced in the currency.

In addition to the Russia-Ukraine conflict, spare crude production capacity remains limited from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+.

OPEC said on Tuesday that oil demand in 2022 faced challenges from Russia’s invasion of Ukraine and rising inflation as crude prices soar, increasing the likelihood of reductions to its forecast for robust demand this year.