Oil falls over $3 on demand concerns; Brent, NYMEX down 4% to hit 1-month lows

Brent crude oil futures were down $3.30, or 3.63 per cent, to $87.62 a barrel, while US West Texas Intermediate crude (WTI) fell $3.29, or 3.69 per cent, to $85.94. Brent traded at its lowest since September 1 during the session, with an intraday low of $87.55 a barrel. WTI’s intraday low of $85.86 was the lowest since September 5, according to news agency Reuters.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a October 19 expiry, was trading 4.31 per cent lower at ₹7,127 per bbl, having swung between ₹7,107 and ₹7,437 per bbl during the session so far, against a previous close of ₹7,448 per barrel.

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What’s weighing on crude oil prices?

-Saudi Arabia and Russia announced that they will stick with the oil supply curbs of 1.3 million barrels a day (mbpd) to the end of the year. The production cuts first announced by the two oil majors in July have driven up prices to 10-month high levels and posed fresh inflationary pressures for the global economy.

-But the price rally has since cooled, with Brent futures retreating to near $90 on amid signs that the price spike is encouraging the US Federal Reserve to keep interest rates higher for longer. Due to this, investors have turned cautious on their positions.

-Oil markets are heading in the ‘right direction’ by balancing supply and demand, Kuwait’s oil minister Saad Al Barrak said on Wednesday, according to state media agency KUNA. Russian Deputy Prime Minister Alexander Novak also said joint voluntary cuts by Russia and Saudi Arabia have helped to balance oil markets.

-However, OPEC data indicates that the measures will leave global markets severely short this quarter, potentially draining inventories by more than 3 million barrels a day — the fastest pace in years.

-Earlier this week, oil Minister Hardeep Puri told Bloomberg TV that oil prices need to fall to levels of around $80 a barrel to be good for the economy. The world’s third biggest oil user is constantly telling oil producing nations that crude is too costly, according to Bloomberg.

-US nationwide crude stocks fell by 2.2 million barrels to 414.1 million barrels in the week to September 29, but stocks at Cushing, Oklahoma rose for the first time in eight weeks, according to the Energy Information Administration (EIA).

-Goldman Sachs Group Inc. expects Saudi Arabia to restore supplies to prevent prices climbing far beyond $105 a barrel, in case that erodes the consumption. The kingdom is counting on high oil prices to help fund Vision 2030, an ambitious plan by Crown Prince Mohammed bin Salman to overhaul the economy, reduce the kingdom’s dependence on oil and create jobs. 

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Updated: 04 Oct 2023, 10:05 PM IST