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Informist, Wednesday, Oct. 9, 2024

 

By Sandeep Sinha

 

MUMBAI – Crude oil prices in domestic and global markets extended their decline for the second straight day as concerns about demand weighed on sentiment. The possibility of a ceasefire between Hezbollah and Israel and delay in an Israeli counterstrike on Iran have led to a fall in risk premium.

 

The most-active November West Texas Intermediate contract has tumbled over 8.6% from the high of $78.46 per barrel touched on Tuesday. Similarly, the most-active October contract on the Multi Commodity Exchange of India has shed nearly 7% from INR 6,495 per barrel on Monday.

 

The bearish sentiment was further exacerbated by the US Energy Information Administration sharply trimming its oil price outlook for 2025 because of weaker demand. The US agency now expects Brent crude oil prices to average $78 per barrel in 2025, $7 lower than last month's projection.

 

China's National Development and Reform Commission on Tuesday failed to announce any new policy support measures. "Without policy support, an economic slowdown could keep China's oil demand subdued in the short to medium term," Warren Patterson, head of commodities strategies, ING Economics, said in a note.

 

"The lack of military action from Israel on Monday, and the lack of new measures in China saw crude oil slump by more than 4%, a reminder that without the geopolitical risk premium and China stimulus, Brent would probably trade close to $70 than $80 a barrel," Ole Hansen, head of commodity strategy at Saxo Bank, said in note.

 

The Organization of the Petroleum Exporting Countries and its allies plan to bring back additional supply of 180,000 barrels per day from December as part of a gradual easing of the voluntary output cuts extending to 2025. This will result in additional supply in the market and is likely to outweigh global oil demand and keep prices in check.

 

The blowout US September non-farm payrolls data pushed the dollar to a two-month high on Wednesday and reduced the possibility of an aggressive interest rate cut by the US Federal Reserve. Data by the US Bureau of Labor Statistics on Friday showed non-farm payrolls in September came in at 254,000.

 

The rise in the dollar makes commodities priced in the greenback more expensive for holders of other currencies. At 2005 IST, the dollar index, which measures the strength of the greenback against a basket of major currencies, was up 0.3% at 102.79. According to Fed fund futures, market participants now expect interest rates in the US to be cut by only 25 basis points in both November and December.

 

At 2005 IST, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $71.68 per barrel, down 2.6% from the previous close, while Brent crude on Intercontinental Exchange was at $75.56 per barrel, down 2.5%.  End

 

US$1 = INR 83.96

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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