Oil sheds 1%, posts weekly loss on soft China demand even as OPEC extends supply cuts; Brent back to $82/bbl

Oil prices closed one per cent lower in the previous session and reported a weekly loss as markets remained wary of soft Chinese demand even as producer group Organisation of Petroleum Exporting Countries (OPEC) extended supply cuts. Earlier this week, China set an economic growth target for 2024 of around five per cent, which several analysts say is ambitious without much stimulus.

Brent crude futures settled down 88 cents, or 1.1 per cent, at $82.08 a barrel. US West Texas Intermediate crude futures (WTI) fell 92 cents, or 1.2 per cent, at $78.01. Both benchmarks fell in the week, with Brent down 1.8 per cent and WTI 2.5 per cent, according to news agency Reuters.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a March 19 expiry, last settled 0.05 per cent lower at ₹6,462 per bbl, having swung between ₹6,427 and ₹6,525 per bbl during the session, against a previous close of ₹6,459 per barrel.

Also Read: Explained | Why did OPEC+ members extend oil output cuts to mid-2024

What’s weighing on crude oil prices?

-Analysts said that while supplies have remained on the tighter side given OPEC’s production cuts and Russian sanctions slowing exports, demand from China looks to be lagging and US driving season demand has yet to kick in.

-China’s imports of crude oil rose in the first two months of the year compared with the same period in 2023, but they were also weaker than the preceding months, data showed on Thursday, continuing a trend of softening purchases by the world’s biggest buyer.

-On the supply side, OPEC members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter, giving extra support to the market amid concerns over global growth and rising output outside the group.

-Meanwhile in the US, energy firms this week cut the number of oil rigs – an indicator of future production – by two to 504 this week, their lowest since February 23, said energy services firm Baker Hughes.

-Oil markets have homed in on signals on the timing of possible rate cuts in the US and European Union in the previous two sessions. Lower interest rates could increase oil demand by boosting economic growth.

-US job growth rose by 275,000 new nonfarm payrolls in February, according to the Bureau of Labor Statistics, beating analysts’ expectations. Unemployment rate also rose and wage growth decelerated, indicating that the US economy could be slowing which kept on the table an anticipated interest rate cut in June from the Federal Reserve.

-US Federal Reserve Chair Jerome Powell said on Thursday that the central bank was “not far” from gaining enough confidence that inflation is falling sufficiently to begin cutting interest rates. He added that achieving the two per cent target is still not assured.

-The European Central Bank (ECB) will likely start lowering interest rates some time between April and June, said the French central bank head and ECB policymaker Francois Villeroy de Galhau.

Also Read: US Fed signals rate cuts in 2024; Powell says progress towards 2% inflation target ‘not assured’ Where are prices headed?

“The current market dynamics underscore the delicate balance between supply and demand,” said Tobi Opeyemi Amure, an analyst at Trading.Biz. “While output cuts by major producers have contributed to supply tightness, the demand outlook in key markets like China and the US will play a crucial role in shaping the trajectory of crude oil prices.”