Oil falls 1% on US crude output, Israel-Hamas ceasefire talks; Brent at $87/bbl

Brent crude futures for June, which expire on Tuesday, were last down 60 cents, or 0.7 per cent, at $87.8 per barrel. The more active July contract fell 97 cents, or 1.1 per cent, to $86.21. The US West Texas Intermediate (WTI) crude futures were last down 83 cents, or one per cent, at $81.82 per barrel.

The front-month contract for both benchmarks lost more than one per cent on Monday. Coming to domestic prices, crude oil futures were last down 0.96 per cent to ₹6,833 per barrel on the multi commodity exchange (MCX).

Also Read: Brent crude may hit $95/bbl in near-term, Q2FY25 target price raised by $5/bbl on geopolitical risk premium: ICICI Bank

What's dragging crude oil prices?

-US crude production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January in its biggest monthly increase since October 2021, the Energy Information Administration said. Meanwhile, exports climbed to 4.66 million bpd from 4.05 million bpd in the same period.

-Expectations that a ceasefire agreement between Israel and Hamas could be in sight have grown in recent days following a renewed push led by Egypt to revive stalled negotiations between the two. Traders believe some of the geopolitical risk is being taken out of the market, according to commodity market experts.

-Continued attacks by Yemen's Houthis on maritime traffic south of the Suez Canal - an important trading route - have provided a floor for oil prices and could prompt higher risk premiums if the market expects crude supply disruptions.

-Investors also await the upcoming monetary policy meeting outcome by the US Federal Reserve Open Market Committee (FOMC), which is due on May 1. According to the CME's FedWatch Tool, it is a virtual certainty that the FOMC leaves rates unchanged at the conclusion of the meeting on Wednesday.

-The upcoming us Fed meeting also drives some near-term reservations, according to market experts. A longer period of elevated interest rates could trigger a further rise in the dollar while also threatening oil demand outlook.

-Some investors are cautiously pricing in a higher probability that the US central bank could raise interest rates by a quarter of a percentage point this year and next as inflation and the labour market remain resilient.

-Concerns over demand have also weighed on sentiment as diesel prices weakened. Balancing the market, output from the Organization of the Petroleum Exporting Countries (OPEC) has fallen in April, reflecting lower exports from Iran, Iraq and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC alliance.

-A Reuters poll found that oil prices could hold above $80 a barrel this year, with analysts revising forecasts higher on expectations that supply will lag demand in the face of Middle East conflict and output cuts by the OPEC producer group.

Also Read: US inflation beats Wall Street estimates, rises 0.4% in March; Fed's June rate cut hopes fade away

Where are oil prices headed?

Crude oil experienced notable volatility, with prices declining following ceasefire talks in Israel. The arrival of Hamas leaders in Cairo for further discussions alleviated concerns of prolonged conflict, consequently reducing the risk premium on crude oil. Moreover, prices dropped amid reduced expectations of Fed rate cuts due to a surge in US inflation. 

''WTI Crude oil rose during the previous week, amid better-than-expected factory activity and signs of imminent policy easing in Eurozone, while investors ignored downbeat US GDP data after Treasury Secretary Janet Yellen said that it could be revised higher later,'' said Kaynat Chainwala, Senior Manager-Commodity Research, Kotak Securities.

Optimism surrounding Chinese demand and global supply concerns stemming from OPEC+ output cuts continue to provide support to oil prices at lower levels. Ongoing support levels for crude oil are driven by a decrease in US crude oil stocks last week and expectations of increased demand during the upcoming summer driving season in the US.

''Anticipate continued volatility for crude oil. Support levels for crude oil stand at $81.50-80.70, with resistance at $83.10-83.90. In terms of INR, crude oil has support at Rs6,820-6,740 and resistance at ₹7,010-7,090,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: 30 Apr 2024, 11:01 PM IST