Oil rises 30% in 3 months on Saudi, Russia output cuts; Brent stares at $100

With oil futures inching closer to $100 a barrel, many investors took profits on the rally given ongoing macroeconomic concerns. Crude prices going above $100 per barrel mark brings inflationary pressures on global economy and will compel central banks to raise interest rates all over again.

Front-month Brent November futures settled down 7 cents to $95.31 per barrel at the contract’s expiry, up about 2.2 per cent in the week and 27 per cent between July-September. The more liquid Brent December contract was settled down 90 cents to $92.20 per barrel. US West Texas Intermediate crude (WTI) settled down 92 cents to $90.97, up 1 per cent in the week and 29 per cent in the quarter, according to news agency Reuters.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a October 19 expiry, settled 1.05 per cent lower at ₹7,543 per bbl, having swung between ₹7,523 and ₹7,736 per bbl during the session so far, against a previous close of ₹7,623 per barrel.

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What’s fueling the rally in crude prices?

-Earlier this month, oil producers Saudi Arabia and Russia extended their voluntary oil output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year which resulted in a sharp surge in international crude prices – reaching almost one-year high peak. The supply cuts announced by Saudi Arabia and Russia are expected to dominate oil prices for the remainder of this year.

-These are on top of the April cuts agreed by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) running to the end of 2024. Ending the week, oil gained almost 1 per cent to a nine-month high on Friday on rising US diesel futures and worries about tighter supplies.

Also Read: The ‘Crude’ Question: Despite restricted supply, can oil sustain at $100/bbl?

-OPEC stuck to its forecasts for robust growth in global oil demand in 2023 and 2024. The producer group expects the world oil demand will rise by 2.25 million bpd in 2024, compared with a growth of 2.44 million bpd in 2023. Both forecasts were unchanged from last month.

-US crude stocks fell by 2.2 million barrels last week to 416.3 million barrels, according to US government data. Crude stocks at the key Cushing, Oklahoma, storage hub and the delivery point for US crude futures, fell by 943,000 barrels in the week to just under 22 million barrels, the lowest since July 2022, according to Reuters.

-The impact of the tight global supplies could be mitigated if interest rates curb demand. In another hawkish signal in the US, Minneapolis Federal Reserve Bank President Neel Kashkari said last week that it was not clear whether the central bank has finished raising rates. Higher interest rates increase borrowing costs, which could slow economic growth and reduce oil demand.

How crude oil prices affected Indian markets?

-Foreign portfolio investors (FPIs) turned net sellers in September because strength in the US dollar index and the US 10-year bond yield remaining high are short-term negatives for FPI capital flows to emerging markets like India, according to analysts. High crude oil prices in the last week of September also weighed on FPIs market behavior.

-Foreign institutional investors (FIIs) have sold ₹25,000 crore in cash markets in September. The US Treasury yields hit a 16-year high mark and crude oil prices almost touched $98 per barrel last week amid concerns over interest rates staying high for an extended period and its impact on the global economy. 

-‘’FPIs have turned sustained sellers in September having sold stocks for ₹26,689 crore in the cash market. This sustained selling has been in response to steady dollar appreciation which took the dollar index close to 107 and the steady rise in the US bond yields which took the 10-year bond yield to around 4.7 per cent. The spike in the Brent crude to $97 also weighed on FPI selling,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

-Going ahead, analysts believe that that persistent selling by foreign investors and global cues such as rising US bond yields and crude oil prices presents a bleak picture for markets in the near-term.

-The benchmark Nifty 50 has retreated from its record-high level achieved earlier this month on unfavorable global triggers. Now, the tone is expected to remain bearish until Nifty crosses the 19,750-mark, according to market experts.

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Updated: 30 Sep 2023, 06:42 PM IST