Oil prices drop on weaker US fuel demand, Gaza ceasefire report; Brent at $85

Brent crude futures for May were down 68 cents, or 0.8 per cent, to $85.27  per barrel after dropping by 1.6 per cent on Wednesday. US West Texas Intermediate futures for May were down 69 cents, or 0.9 per cent, to $80.58 per barrel after a fall of about 1.8 per cent in the previous session, according to Reuters.

Coming to domestic prices, crude oil futures were trading 0.33 per cent lower at ₹6,726 per barrel on the multi commodity exchange (MCX).

What’s pulling down oil prices?

-Crude inventories in the US, the world’s biggest oil consumer, unexpectedly declined last week, the US Energy Information Administration (EIA) reported on Wednesday. Though gasoline inventories fell for a seventh week, down 3.3 million barrels to 230.8 million, gasoline product supplied, a proxy for product demand, slipped below nine million barrels.

Also Read: US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights

-Oil prices also were pressured by confirmation that the US drafted a UN resolution calling for a ceasefire that would allow the release of 40 Israeli hostages in return for hundreds of Palestinians detained in Israeli jails.

-Investors also took a note from the US central bank, which held interest rates at a 23-year high level on Wednesday, but kept to an outlook for three rate cuts this year. Lower rates could boost economic growth, in good news for oil sales.

-US business activity held steady in March, but prices increased across the board, suggesting that inflation could remain elevated after picking up at the start of the year, according to reports.

-Ukrainian attacks on Russian refineries have prompted investors to trade crude at higher prices, factoring in that the strikes could hit global petroleum supplies. Ukrainian drones have targeted at least seven Russian refineries this month. The attacks have shut down seven per cent, or around 370,500 barrels per day, of Russian refining capacity, according to Reuters.

-Analysts say prolonged disruptions could force Russian producers to reduce supply if they are unable to export crude oil and face storage constraints.

-Germany’s economy was likely in recession in the first quarter of 2024 as weak consumption and poor industrial demand continue to push the recovery further into the future, the central bank said in a regular economic report on Thursday.

Also Read: Oil market oversupplied with record-high US output, Brent seen at $87-$92 for 2024: ShareKhan’s Mohammed Imran

Where are prices headed?

Crude oil exhibited significant volatility, experiencing a decline from its highs due to routine profit-taking. Following the Fed meeting, the dollar index experienced a subsequent plunge, potentially bolstering oil prices at lower thresholds. 

‘’Technically, trend remains positive till above support at 6,730-6,690, while on the upside prices have potential to test 6,900-7,000 levels,” said Pranav Mer, Vice President, EBG – Commodity & Currency Research, JM Financial Services Ltd.

Larger-than-anticipated declines in US weekly inventories, as reported by the US EIA, may further contribute to price support, said analysts.

‘’Anticipating the trading session, we foresee continued volatility in crude oil prices. Support levels for crude oil are expected at $81.00–80.20, with resistance levels projected at $82.40–83.00. In terms of INR, crude oil is likely to find support around ₹6,670–6,600, while resistance is anticipated at ₹6,820–6,890,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: 21 Mar 2024, 10:51 PM IST