Oil down 2%, posts weekly loss as investors see limited effect of OPEC+ supply cuts; Brent at $78/bbl

Brent crude futures for February settled down $1.98, or 2.45 per cent, at $78.88 a barrel. US West Texas Intermediate crude futures (WTI) dropped $1.89, or 2.49 per cent, to $74.07 a barrel. For the week, Brent posted a decline of about 2.1 per cent, while WTI lost more than 1.9 per cent, according to news agency Reuters.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a December 18 expiry, settled lower by 0.8 per cent at ₹6,231 per bbl, having swung between ₹6,210 and ₹6,409 per bbl during the session, against a previous close of ₹6,281 per barrel.

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What’s weighing on crude oil prices?

-OPEC+ producers agreed on Thursday to remove around 2.2 million barrels per day (bpd) of oil from the global market in the first quarter of next year, with the total including a rollover of Saudi Arabia and Russia’s 1.3 million bpd of current voluntary cuts. Traders viewed the announcement with some skepticism, say analysts.

-OPEC+, which pumps more than 40 per cent of the world’s oil, is reducing output after prices fell from about $98 a barrel in late September on concerns about the impact of sluggish economic growth on fuel demand.

-The cuts agreed by OPEC+ on Thursday are voluntary, so there was no collective revision of OPEC+ production targets. The voluntary nature of the cuts led to some skepticism about whether or not producers would fully implement them, and also from what basis the cuts would be measured.

-In the US, Federal Reserve Chair Jerome Powell said that the central bank would move “carefully” on interest rates as risks of “under- and over-tightening are becoming balanced.” US manufacturing remained subdued and factory employment fell in November, according to a survey.

-Investors are keeping a watchful eye on global manufacturing activity, which remained weak during the month on poor demand, according to surveys. On the supply side, the US on Friday imposed additional sanctions related to the price cap on Russian oil, targeting three entities and three oil tankers.

-On Friday, talks to extend a week-long truce between Israel and Palestinian militant group Hamas collapsed, prompting a resumption in the war in Gaza. The conflict had initially supported oil prices on concerns that any escalation that involved oil producers could disrupt supply. So far, the conflict has had no significant impact on global oil flows.

Also Read: India’s crude oil output up 1.3% to 2.5 MMT in October, imports rise after four months of declines: PPAC

Where are prices headed?

Rebound in the dollar index from nearly 4-month lows also pushed oil prices lower. Crude oil prices also fell as output cuts announced by OPEC+ came in lower than market expectations, according to analysts.

‘’Output cut is also voluntary and the market is not expecting 100 per cent compliance on output cuts. Crude oil is having support at $74.85–74.10 and resistance at $76.50-77.20. In INR terms, crude oil has support at Rs6,320-6,240 while resistance is at ₹6,480-6,550,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Updated: 02 Dec 2023, 07:25 PM IST