Crude oil prices drop nearly 5% to 4-month low
Crude oil prices plummeted nearly 5%, hitting a four-month low on November 16. This price drop comes amid an increase in US crude oil inventories, a rebound in US treasury yields, and global oil demand concerns. During the last trading session, Brent crude dropped by 4.63% to $77.42 per barrel, and West Texas Intermediate (WTI) crude oil futures fell 4.9% to $72.90 per barrel. Over the past four weeks, both indices have lost approximately one-sixth of their value.
Rise in US crude inventories
The primary cause for the decrease in oil prices is the sharp rise in US crude inventories, which analysts believe has led to concerns about weak demand in the face of high output. According to data from the International Energy Agency (EIA), US crude oil inventories rose by 3.59 million barrels over the last week, reaching just over 439 million barrels—the highest level since August, following a 13.9 million barrel increase in the previous week.
Demand concerns in China and seasonal impact
In October, Chinese economic activity experienced a boost, with industrial output growing at a faster rate and retail sales growth surpassing expectations. However, China's oil refinery throughput experienced a decline in October compared to the previous month's levels, due to weakened industrial fuel demand and reduced refining margins. Jim Burkhard, President of S&P Global Commodity Insights, attributes this situation to seasonal factors that typically cause a slowdown in demand during winter months.
OPEC blames speculators for price drop
The Organisation of Petroleum Exporting Countries (OPEC) has pointed to speculators as the cause for the recent decline in oil prices, dismissing negative sentiment as exaggerated. In its monthly report, the organization stated, "Despite the above healthy and supportive market fundamentals, oil prices have trended lower in recent weeks, mainly driven by financial market speculators."
US sanctions on Iran
As tensions rise between Israel and Hamas in Gaza, US officials have announced their intention to enforce oil sanctions against Iran, a long-time supporter of Hamas. Stricter enforcement of these sanctions could result in a loss of 500 million-1,000 million barrels per day of supply, significantly tightening the global oil balance through 2024.
Bond yields
On November 15, despite indications of inflation easing, US Treasury yields surged from a two-month low following a revised report on September's robust retail sales. Typically, when US yields rise, the dollar strengthens as investors seek higher returns. A robust dollar, coupled with increased interest rates, tends to raise the cost of commodities like crude oil for holders of other currencies. Consequently, this might affect the demand for crude oil.
Oil-linked stocks climb as oil prices fall
At the start of trading, BPCL jumped nearly 2% to reach a new high of Rs. 405.35 in 52 weeks. IOC also rose over 1% to Rs. 105.3, close to its 52-week peak of Rs. 106.9. HPCL saw the biggest surge, going up by more than 3% to hit a new high of Rs. 334.35 per share. In the previous session, most OMC stocks went up by about 2%. HPCL, IOC, and BPCL gained 2%, 2%, and 1%, respectively.
Indian government has reduced windfall taxes on oil
Separately, the Indian government has reduced the windfall tax rates on both crude oil and diesel. For crude oil, the tax has been decreased from Rs. 9,800 per tonne to Rs. 6,300 per tonne, while for diesel, it has been lowered from Rs. 2 per liter to Re. 1. This reduction in windfall taxes is viewed as a positive development for oil marketing companies, potentially benefiting their operations.
