Oil prices drop over $1, settle lower on volatile session after US macro data, FOMC policy decision; Brent at $76/bbl

Brent futures settled down 6 cents, or 0.08 per cent, at $76.55 a barrel. US West Texas Intermediate (WTI) crude finished down 15 cents, or 0.21 per cent, at $71.43, according to news agency Reuters. Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a December 18 expiry, settled 1.06 per cent lower at 5,953 per bbl, having swung between 5,839 and 6,004 per bbl during the session, against a previous close of 6,017 per barrel.

Also Read: OMC stocks on uptrend over lower crude oil prices; BPCL, HPCL see sharp gains, Indian Oil hits 52-week high

What’s weighing on crude oil?

-Traders took note of comments from New York Federal Reserve Bank President John Williams about hopes for interest rate cuts in the coming year. “We aren’t really talking about rate cuts right now,” Williams said in an interview with CNBC. When it comes to the question of lowering rates, “I just think it’s just premature to be even thinking about that” at this point, he said.

-On Thursday, Federal Reserve Chairman Jerome Powell said interest rate hikes intended to curb inflation were likely at an end, but left open the possibility for further increases. The Fed kept interest rates unchanged at a 22-year high mark for the third straight meeting in 2023.

-The dollar fell to a four-month low on Thursday after the central bank after Powell’s comments, seeing signs lower borrowing costs are coming in 2024. The dollar index was broadly steady on Friday. A weaker dollar makes dollar-denominated oil cheaper for foreign buyers.

-World oil consumption will rise by 1.1 million barrels per day (bpd) in 2024, the International Energy Agency said in a monthly report. While that is a 130,000-bpd increase from its previous forecast, the estimate is less than half of the Organization of the Petroleum Exporting Countries’ (OPEC) demand forecast of 2.25 million bpd.

-OPEC and its allies including Russia (OPEC+) agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year. The market has been concerned, however, that some members may not adhere to their commitments.

-Another bullish signal for oil markets on Friday was the lower drilling rig count from energy technology firm Baker Hughes. The oil and gas rig count, an early indicator of future output, fell by 3 to 623 in the week to December 15.

-Baker Hughes said US oil rigs fell 2 to 501 this week, while gas rigs were unchanged at 119. That brings the rig count down from a post-pandemic high of 784 in December 2022 due to a drop in oil and gas prices, as per Reuters.

Also Read: Stock Picks: ONGC, Oil India among top picks for Motilal Oswal in upstream sector, Indian Oil among OMCs

Where are prices headed?

Crude oil prices marked a second consecutive session gain on Thursday, rebounding from a six-month low on Wednesday. The surge came in the wake of the IEA optimistic demand forecast for 2024, unveiled in its monthly report released on Thursday. 

The rally in crude oil prices was bolstered by a decline in the dollar index to 19-week lows and a slip in US 10-year bond yields below the 4 per cent threshold, following signals from the US Federal Reserve indicating potential rate cuts in 2024.  An uptick in risk appetite and the strength observed in global equity markets provided additional support for crude oil prices. 

Expectations are for crude oil prices to maintain volatility. The commodity finds support in the range of $71.50–70.80, with resistance levels identified at $72.90–73.50. In terms of INR, crude oil is anticipated to have support at 5,880–5,810, while resistance is projected at 6,120–6,190,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd

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Published: 16 Dec 2023, 07:13 PM IST

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