Crude oil prices dropped nearly 5 per cent amid rising US inventories, a rebound in US Treasury bond yields and concerns over global oil demand, NewsBytes reported.
Brent crude fell by 4.63% to $77.42 per barrel during the last trading session. Futures for West Texas Intermediate (WTI) crude oil fell by 4.9% to $72.90 per barrel.
The main reason for the decline in oil prices is a sharp rise in US crude oil inventories, which, according to analysts, has led to concerns over weak demand amid high production levels. The International Energy Agency (EIA) reported that US crude inventories rose by 3.59 million barrels in the latest week to just over 439 million, the highest level since August after a 13.9-million-barrel increase in the previous week.
In China, economic activity experienced an upturn, with industrial production growing at a faster pace and retail sales exceeding expectations. However, the productivity of the country’s refineries declined from the previous month’s level due to weaker demand for industrial fuels and lower refining margins.
Jim Burkhard, President of S&P Global Commodity Insights, attributes the decline to seasonal factors that usually cause a slowdown in demand during the winter period. The Organisation of Petroleum Exporting Countries (OPEC) blamed speculators for the recent decline in oil prices.
Despite the above healthy and supportive market fundamentals, oil prices have trended lower in recent weeks, mainly driven by financial market speculators.
In addition, the US has announced its intention to impose oil sanctions on Iran, a long-time supporter of Hamas, amid rising tensions in the Gaza Strip. Stricter enforcement of these sanctions could result in a loss of supply of 500-1,000 million barrels per day, significantly disrupting the global oil balance through 2024.
On 15 November, despite signs of slowing inflation, US Treasury yields rose from a two-month low following a revised report of robust retail sales in September.
A robust dollar, combined with higher interest rates, tends to increase the cost of commodities, such as crude oil, to holders of other currencies, potentially affecting demand for crude oil.
In early trade, BPCL jumped nearly 2 per cent to hit a new 52-week high of Rs 405.35. IOC also rose more than 1 per cent to Rs 105.3, nearing its 52-week peak of Rs 106.9. Meanwhile, HPCL hit its highest levels, rising more than 3 per cent to Rs 334.35 per share.
The tax for crude oil was cut by the Indian government from Rs 9,800 to Rs 6,300 per tonne, while for diesel it was reduced from Rs 2 to Rs 1 per litre. Such a reduction in windfall taxes is seen as a positive development for the oil sector.
