Oil prices rise 2% driven by Red Sea tensions, US crude stock draw; Brent at $81

Brent crude futures were up $1.29, or 1.6 per cent, to $81.33 a barrel, while US West Texas Intermediate crude was up $1.37, or 1.8 per cent, to $76.46 a barrel, according to news agency Reuters.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a February 16 expiry, was last trading 1.7 per cent higher at ₹6,359 per bbl, having swung between ₹6,208 and ₹6,378 per bbl during the session, against a previous close of ₹6,253 per barrel.

Also Read: India’s crude oil output down 1.03% to 2.5 MMT in December, imports rise 1.1% YoY: PPAC

What’s driving crude oil prices?

-The US crude stockpiles tumbled by 9.2 million barrels last week, said the Energy Information Administration (EIA). The draw was driven by a stark drop in US crude imports as winter weather shut in refineries and kept motorists off the road.

-Geopolitical tensions in the Middle East remained in focus. In the latest blow to shipping around the Red Sea corridor, Maersk said explosions nearby forced two ships operated by its US subsidiary and carrying military supplies to turn around when they were transiting the Bab al-Mandab Strait off Yemen, accompanied by the US Navy.

-On Thursday, Yemen’s Houthi leader vowed to continue targeting ships linked to Israel until aid reaches the Palestinian people in Gaza. Analysts say that energy markets wake up to the distinct possibility that these supply chain disruptions will rumble on for months yet.

-Oil prices also drew support from hopes for China’s economic recovery. China’s central bank announced a deep cut in bank reserves on Wednesday, in a move that will inject about $140 billion of cash into the banking system and send a strong signal of support for a delicate economy and plunging stock markets.

-However, elsewhere, the spectre of sustained high interest rates loomed large. Data on Thursday showed the US economy grew at a faster pace than expected in the fourth quarter, suggesting the US Federal Reserve would be in no rush to cut interest rates.

-The European Central Bank (ECB) retained its record-high benchmark rate of four per cent, giving no hint that policymakers are even contemplating policy easing. Financial markets are expecting a rate cu as early as April, while ECB President Christine Lagarde has indicated it likely would happen this summer.

Where are prices headed?

Crude oil experienced a notable uptick of approximately one per cent in the global markets, propelled by a more significant-than-anticipated reduction in US oil inventories and supportive measures from the Chinese stimulus, said analysts.

Concurrently, US output witnessed a decline from the previous record of 13.3 million barrels per day to 12.3 million barrels per day, primarily due to adverse weather conditions in North Dakota. 

The surge in crude oil prices was further bolstered by the announcement from the Chinese central bank indicating a 50 basis points reduction in its RRR starting February 5th. Also, geopolitical tensions in the Middle East and profit-taking in the dollar index contributed to the support of oil prices. 

‘’Anticipating ongoing volatility, we project that crude oil prices will remain dynamic. The support for crude oil is identified at $74.50–73.90, with resistance expected at $75.85-76.40 for the current session. In INR, crude oil is anticipated to find support in the range of ₹6,185-6,100, while resistance is expected at ₹6,300-6,410,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: 25 Jan 2024, 10:17 PM IST