Oil gains 1% in five days on US elections, Fed rate cut; Brent sits 2% lower to $73 dragged by subdued China stimulus

International crude oil prices settled more than two per cent lower in the previous session as traders grew less fearful of prolonged supply disruptions from a strong hurricane in the US Gulf of Mexico, while top importer China's latest economic-stimulus packages failed to impress some oil traders.

US West Texas Intermediate (WTI) futures led the decline and settled at 70.35 per barrel on Friday, November 8, down by 2.7 per cent, or $1.98. Global benchmark Brent crude futures dropped 2.3 per cent, or $1.76, to $73.87 per barrel. 

Despite Friday's losses, oil prices gained more than one per cent week-over-week, drawing support from expectations of tighter sanctions on Iran and Venezuela by US President-elect Donald Trump, which could cut oil supply to global markets. Back home, crude oil futures settled 0.1 per cent lower at ₹5,950 per barrel on the multi commodity exchange (MCX).

Also Read: Gold Prices Today: Yellow metal to log worst week in five months after Trump’s win weighs on US Fed rate outlook

Oil gains 1% in five days: What's weighing on crude oil prices?

-Energy producers shut in more than 23 per cent of oil output in the US Gulf of Mexico by Friday to brace against Hurricane Rafael. However, the latest forecasts on trajectory and intensity reduced the risks Rafael poses to oil production.

-Analysts said threats of supply outages due to Hurricane Rafael are subsiding as the storms shifts to circling in the center of the Gulf of Mexico for the next five days or so. The storm, which left a trail of destruction in Cuba this week, had weakened to a category 2 hurricane, according to the US National Hurricane Center's latest advisory.

Also Read: US Election Results: FPI outflows to China trade war—how will Trump’s victory impact global markets? Experts weigh in

-Meanwhile, top oil importer China's latest round of fiscal support disappointed oil investors. Chinese authorities announced a package easing debt-repayment strains for local governments, but analysts said those measures do little to directly target demand.

-Some market participants were hoping for more stimulus measures coming from China. Hence, the disappointment weighing on prices. Deflationary pressures on the Chinese economy have been a heavy drag on oil prices this year, with customs data showing a sixth consecutive month of year-over-year declines in the country's crude oil imports for October.

-The US Federal Reserve's decision to cut the benchmark interest rates by a quarter percentage point on Thursday could also helped lift oil prices by more than one per cent in the previous session. US Fed added the labour market has stayed strong despite a sharp hiring slowdown last month due to weather conditions and a labour strike.

Also Read: US Election Results: 4 key factors that may impact Indian stock market as Trump eyes return to the White House
 

Where are oil prices headed?

Crude oil exhibited significant volatility, rebounding sharply after a steep decline in the previous session, following Donald Trump’s victory in the US Presidential elections. Oil prices surged as the US Federal Reserve cut interest rates by 25 basis points, boosting expectations for a revival in oil demand. The dollar index and US 10-year bond yields retreated from four-month highs, further supporting oil prices. 

"The market sentiment anticipates that the incoming Trump administration may impose stricter sanctions on Iran due to its conflict with Israel, potentially driving oil prices higher. We expect prices to remain volatile. Crude oil has support at $71.20–$70.70, with resistance at $72.50–$73.10. In INR terms, crude oil has support at ₹6,040– ₹5,970, while resistance is at ₹6,190– ₹6,250," said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.