Explained: Why oil prices are sharply down and how low can they go

bharatkashyap6969
December 7, 2023
Categories: Blog
Tags: crude oil prices, oil price, oil price decline, oil prices at six month low

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Oil prices recovered some of the early losses in early trade on December 7. However, Brent crude futures continued to trade below $75 a barrel, the lowest levels since June, on the back of high US crude output and gasoline inventories.

Investors also remained concerned about sluggish demand and economic slowdowns in the US and China.

However, it must be noted that a fall in crude oil prices is a positive for importers of the commodity like India and its oil marketing companies.

Why oil prices fell?

Oil prices have fallen by about 10% since the Organization of the Petroleum Exporting Countries and Allies (OPEC+), announced a combined 2.2 million barrels per day voluntary output cuts.

This is contrary to what forecasters such as Goldman Sachs, Standard Chartered Plc and Barclays Plc see scope for crude to pick up again and reach $100 a barrel as further increases in demand whittle away stockpiles.

According to a Reuters survey, OPEC oil output fell in November in the first monthly drop since July, as a result of lower shipments by Nigeria and Iraq as well as ongoing market-supporting cuts by Saudi Arabia and other members of the wider OPEC+ alliance.

“Oil markets seem to completely sideline producer’s cartel manoeuvres aimed at keeping oil prices elevated,” said Priyanka Sachdeva, an analyst from Phillip Nova, in a note cited by Reuters.

Rahul Kalantri, VP of Commodities, Mehta Equities Ltd, explained to CNBC-TV18 that crude oil prices are slipping amid strength in the dollar index and Chinese demand worries. The dollar index extended its gains after Moody’s cut the growth outlook of China, also leading to demand concerns.

Meanwhile, Russian President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman met to discuss further oil price cooperation among OPEC and allies (OPEC+), potentially strengthening market confidence in the impact of output cuts.

Till when will oil prices remain low?

Kalantri is of the view that the oil market is in an oversold zone, so investors must remain cautious on the short side.

According to him, WTI prices should look to get support at $67.80 and resistance at $71.20 while crude oil MCX prices look to get support at 5680 and resistance at 6150.

Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, said oil can fall to $50 per barrel and the rupee can strengthen. “We can have a component growth of 7-8% for many years to come. So, it is India’s decade, maybe India’s few decades,” he said.

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