Crude oil prices experienced a sharp correction in the previous trading session, with Brent crude futures declining by 5.62% to reach $85.10 a barrel, while WTI crude futures saw a significant drop of 5.62% to $85.81 a barrel. Both of these key benchmarks recorded a 10% decline over the last five trading sessions, driving them to their lowest levels in a month.
The sharp drop in crude in Wednesday's trade came after official data showed extremely weak US fuel demand. The EIA reported that US gasoline demand’s four-week average fell last week to 8.3 million bpd, marking its lowest point since 1998.
Oil prices were also pressured by news that Russia may lift its diesel ban in the coming days. Moreover, investors turned cautious amid growing concern about a looming slump in global economic growth, Trading Economics reported.
In addition, U.S. oil inventories declined by 2.2 million barrels last week to 414.1 million barrels, according to data released by EIA.
Meanwhile, OPEC+ made no changes to their supply cuts. Saudi Arabia continued its voluntary output cut of 1 million barrels per day, and Russia extended its voluntary export curb of 300,000 barrels per day until the year's end.
The initial announcement of one million barrel per day cut by Saudi Arabia was made in June 2023 after a meeting of the alliance between the Organisation of the Petroleum Exporting Countries, Russia, and other smaller producers.
These supply cuts significantly boosted crude oil prices, ending a year-long trend of decline that began in June 2022. Prices started an upward trajectory in June 2023 and maintained their bullish momentum until September. Brent and WTI both reached 11-month highs on September 27.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said," Production cuts by OPEC and Russia will keep crude prices elevated. Apart from supply, demand will influence the price, and, therefore, global growth has to be carefully watched."
"If Chinese growth continues to struggle, impacting global growth, oil demand will be soft, restraining prices. MPC is unlikely to be influenced by the rise in crude prices. MPC will hold the rates and maintain the stance in the meeting this week," he added.
The sharp drop in oil prices after a prolonged surge came as a relief, especially for a country like India, which depends on imports for more than 85% of its oil requirements.
Earlier this week, India’s Oil Minister Hardeep Puri in an interview with Bloomberg said that prices need to drop to levels of about $80 a barrel to be good for consumers.
Beyond macroeconomic advantages, the correction in crude prices is expected to have a positive impact on industries that are heavy consumers of oil, such as paints, aviation, and tyre manufacturing.
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