For the past two months, crude oil prices have fluctuated wildly due to concerns about the rise in Covid cases in China, mounting recessionary fears, and the impending European ban on Russian oil alongside the G7 nations' price cap plan. In just last week alone, crude oil prices have corrected by almost 10% as the outlook for oil demand was clouded by an increase in Covid-19 cases in China, the world's largest crude importer.
Adding to the challenges, the International Energy Agency lowered its global oil demand growth estimate for next year again, citing weak economic growth in China, Europe’s energy crisis, and a strong dollar. The agency has decreased its previous prediction of 1.7 million barrels per day growth in oil demand to 1.6 million barrels per day growth in 2023, according to media reports.
Continuing the downward trend from the previous week, crude oil prices tumbled on Monday. WTI crude futures hit a low of $75.27 a barrel while Brent crude futures sank to $82.31 a barrel after the Wall Street Journal reported that OPEC+ was preparing to announce a 500,000 barrel per day increase in crude production at its upcoming meeting on December 4.
However, both Brent and WTI recovered most of their losses after Saudi Arabia denied the WSJ report. Saudi Arabian energy minister Prince Abdulaziz bin Salman stated that the kingdom will stick to output cuts and will not discuss a potential oil output increase with other OPEC oil producers, state news agency SPA reported.
In October, OPEC+ members agreed to cut oil production by 2 million barrels per day, the largest reduction since the pandemic began to boost oil prices. The reduction is roughly equivalent to 2% of global oil demand. Within weeks of the OPEC+ decision, Brent crude rose from a low of around $82 per barrel to nearly $100, while WTI rose from $76 to $90.
Prior to this, when crude oil prices tumbled 9% in September, OPEC+ stepped up its efforts and reduced output to 100,000 barrels per day for October, which represented just 0.1% of the world's demand.
In the upcoming meeting, OPEC+ will remain stable and may not cut crude output, as they await the outcome of the EU ban on Russian crude and the impact of G7 nations' price cap.
Meanwhile, Inflation is sweeping the world, with major economies experiencing decade-high inflation rates as a result of geopolitical tensions that flared up in February, pushing energy prices to all-time highs. The sharp drop in crude oil prices from a high of $140 in March, however, has provided some relief from inflationary pressures.
India which meets 85% of its crude requirements through imports has received some relief from the decline in crude prices. Indian equity markets rose as a result of low oil prices in July and August, and so far in November as Brent crude futures fell 5.70%, Indian benchmark indices have reached all-time highs.
On the other hand, India imports more crude oil from Russia at discount rates despite repeated US attempts to coerce India into cutting ties with Russia.
Russia's crude oil accounted for only 0.2% of all oil imported by India in the fiscal year ending March 31, 2022. It now accounts for 22% of India's total crude imports, trailing only Iraq (20.5%) and Saudi Arabia (16%), PTI reported, quoting Vortexa, an energy intelligence firm.
Elsewhere, the Indian rupee fell by 96 paise, or 1.18%, in the previous week, marking the first weekly decline after three weeks of gains. The rupee's depreciation has continued despite the RBI's ongoing efforts.
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