International crude oil prices retreated in the previous session as investors weighed expectations of a rise in supply by the Organization of the Petroleum Exporting Countries and allies (OPEC+) starting in October, along with dwindling hopes of a hefty US interest rate cut next month, following data showing strong consumer spending and economic growth.
Brent crude futures for October delivery, which expire on Friday, settled $1.14 lower, or 1.43 per cent, at $78.80 a barrel, marking a decline of 0.3 per cent for the week and 2.4 per cent for the month. US West Texas Intermediate crude futures settled down $2.36, or 3.11 per cent, to $73.55, a drop of 1.7 per cent in the week and a 3.6 per cent decline in August.
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What’s weighing on crude oil prices?
-OPEC+ is set to proceed with a planned oil output hike starting in October, as some members’ Libyan outages and pledged cuts to compensate for overproduction counter the impact of sluggish demand. Analysts said that OPEC is talking about tapering off production cuts sunk oil prices.
-Meanwhile, investors responded to new data that showed US consumer spending increased solidly in July, suggesting the economy remained on firmer ground early in the third quarter and arguing against a half-percentage-point interest rate cut from the US Federal Reserve next month. Lower rates can boost economic growth and oil demand.
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-Analysts said that modest inflation increase could basically solidify that we will only get a quarter percentage-point cut and those hoping for a half will have to wait. Elsewhere, Libya’s National Oil Corporation said recent oilfield closures have caused the loss of approximately 63 per cent of the country’s total oil production as a conflict between rival eastern and western factions continues.
-According to Rapidan Energy Group, the consulting firm, production losses could reach between 900,000 and one million barrels per day (bpd) and last for several weeks. Libya’s eastern-based government announced the closure of all oil fields on Monday, halting production and exports and driving oil to settle at a near-two-week high on August 26.
-Iraqi supplies are also expected to shrink after the country’s output surpassed its OPEC quota, a source with direct knowledge of the matter told Reuters on Thursday. Iraq plans to reduce its oil output to between 3.85 million and 3.9 million bpd next month. The number of active oil rigs in the US remained at 483 this week but rose by one in August.
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Where are prices headed?
The US GDP for the second quarter grew by three per cent, surpassing the anticipated 2.8 per cent growth, easing recession fears and lending support to oil prices. The supply disruptions in Libya and Iraq further bolstered global oil prices. However, demand concerns from China and a stronger dollar index limit these gains.
‘’The dollar index crossed the 101 mark ahead of the US core PCE price index data, further capping crude oil’s upward momentum. We anticipate that crude oil prices will remain volatile. Crude oil has support at $74.60–74.00 and resistance at $76.10–76.65. In INR terms, crude oil is supported at ₹6,290–6,210, with resistance at ₹6,400–6,460,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.