A slowdown in the Chinese economy and lacklustre global demand to further weigh in on crude oil prices in the coming months, according to analysts.
Brent crude futures settled at $80.61 a barrel on November 17, while West Texas Intermediate crude (WTI) closed at $75.89 per barrel, registering the fourth weekly loss.
“Excess US inventory levels and Chinese economy slowdown are playing against upward movement in crude prices. On the other hand, OPEC has given a bullish outlook for demand for the year. We don’t expect crude prices to fall significantly from here. They will stay in a range with a downward bias till China situation improves. Crude prices are expected to stay between $73 and $81 per barrel in the next couple months,” said Deepak Jasani, head of retail research at HDFC Securities.
Demand from China, the largest energy importer in the world, has remained weak due to economic distress in the country. Meanwhile, US crude stocks surged by 3.6 million barrels last week.
However, the Organisation of Petroleum Exporting Countries (OPEC) has increased the oil demand forecasts for the current year and 2024, citing strong market fundamentals. OPEC pegged the demand growth at 2.46 million bpd for 2023, up 20,000 bpd from its previous forecast.
Brokerage Sharekhan said it holds a bearish view on crude oil amid softening demand from Asia and US that is visible through the surging US commercial inventories.
“The supplies from Iraq, Nigeria and Angola are rising, the US production is standing at 13.2mbpd, while according to media reports, US energy companies are planning to ship Venezuelan oil to China. These developments will act as headwind for oil prices in medium term,” Sharekhan said in a note.
Impact on India
Energy experts said falling crude oil prices would help India lower its import bill but fuel price revision by the oil marketing companies (OMCs) is not in sight until prices remain low for a sustained period of time.
“Until we see sustained downtrend in crude oil prices, we do expect revision in fuel prices. The companies have made under recoveries on diesel, which is the largest product sold in the market, when the prices were high. So, till we see stability in prices Demand from China, the largest energy importer in the world, has remained weak due to economic distress in the country. Meanwhile, crude stocks in the US rose by 3.6 million barrels recently.at lower levels, it is difficult to say that OMCs would revise prices,” said Prashant Vasisht, VP and Co-Head of Corporate Ratings at ICRA.
State-run oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have left retail fuel prices unchanged since April 2022 even when crude prices crossed $90 a barrel.
However, lower crude oil prices would also help reduce the country’s import bill but inflation would not be much impacted, said Vasisht. India’s merchandise trade deficit scaled a record high in October, pushed by higher import bills for gold and oil, among other factors.
Source: Money Control