Brent, WTI shed 6% as oil heads for steepest weekly drop in 3 months: What’s cooling down the commodity?

Brent crude futures for July were last down 29 cents, or 0.35 per cent, to $83.38 a barrel. US West Texas Intermediate crude for June fell 37 cents, or 0.47 per cent, to $78.58 per barrel. Both benchmarks are set for weekly losses as investors are concerned that higher-for-longer interest rates will curb economic growth in US-the world’s leading oil consumer, and in other parts of the world.

Also Read: US Fed to hold rates at 23-year high-mark until inflation cools, slows pace of balance sheet runoff: 5 key highlights

Benchmark Brent crude was on course for a weekly decline of about 6.8 per cent while WTI was headed for a loss of 6.4 per cent on the week, according to news agency Reuters. Coming to domestic prices, crude oil futures declined 0.76 per cent to ₹6,551 per barrel on the multi commodity exchange (MCX).

Oil drops 6% this week: What’s cooling down the commodity?

-US job growth slowed more than expected in April and the annual wage gain cooled, data showed on Friday, prompting traders to raise bets that the US central bank will deliver its first interest rate cut this year in September.

-Analysts said that the economy is slowing a little bit. But the data gives a path forward for the Fed to have at least one rate cut this year. The US Federal Reserve held rates steady this week and flagged high inflation readings that could delay rate cuts. Higher rates typically weigh on the economy and can reduce oil demand.

-The market is repricing the expected timing of possible rate cuts after the release of softer-than-expected monthly jobs data Energy services firm Baker Hughes on Friday is due to release its weekly count of oil and gas rigs, an indicator of future crude output from the world’s top producer.

-Geopolitical risk premiums due to the Israel-Hamas war have faded as the two sides consider a temporary ceasefire and hold talks with international mediators. Oil prices touched $90 per barrel in April over Middle East crisis.

-The next meeting of OPEC oil producers – members of the Organization of the Petroleum Exporting Countries and allies including Russia – is set for June 1. Three sources from the OPEC group told Reuters it could extend its voluntary oil output cuts beyond June if oil demand does not increase. 

Also Read: Brent may hit $95/bbl in near-term, Q2FY25 target price raised by $5/bbl on geopolitical risk premium: ICICI Bank

-India has now replaced China as the top Russian crude oil importer. While China is looked at with suspicion when it increases Russian oil imports, there is no such pressure on India. In April, Russia witnessed a substantial increase in oil exports to India compared to March, according to analysts.

Where are prices headed?

Crude oil prices experienced a mixed settlement in international markets, reflecting the heightened volatility of the session. The struggle stemmed from concerns over demand alongside diminishing optimism for prompt Fed rate adjustments. The sentiment shift following the Fed Chairman’s remarks exerted downward pressure on oil markets, compounded by apprehensions regarding demand in the context of potentially higher interest rates, said analysts.

‘’Factors such as the dollar index’s weakness and the ongoing OPEC+ output cuts offered some support to prices at lower levels. Anticipating ongoing volatility, crude oil prices are expected to fluctuate through the week, influenced by shifts in the dollar index. Technically, crude oil finds support levels around $78.10–77.20, with resistance at $79.90-80.70. In terms of the INR, crude oil sees support at ₹6,520-6,460 and resistance at ₹6,670-6,760,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Also Read: India’s crude oil consumption up 4.6% in FY24, output rises marginally at 0.6%, imports steady: PPAC

On the domestic front, analysts said that over the years, India has shown itself to be an opportunistic crude oil player, looking for and able to get discounts on its crude basket using geopolitical factors to its unique advantage. 

‘’The discounts on Russian crude have played a crucial role in bolstering Russia’s share of the Indian crude import market to over 35 percent from less than two percent in 2021. Notably, India imported 82 million tonnes of Russian oil in 2023, comprising half of Russia’s seaborne exports, compared to four million tonnes in 2021. With the continuation of these discounts in the foreseeable future, India is likely to maintain its imports of Russian oil,” said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 03 May 2024, 10:55 PM IST