Oil logs biggest weekly decline in one year on China demand concerns; Brent drops 7% in five days to $73/bbl

International crude oil prices declined in the previous session to log their biggest weekly decline in one year after data showed China's economic growth slowed amid weak demand and investors digested a mixed Middle East outlook.

Brent crude futures fell $1.39, or 1.87 per cent, to $73.06 a barrel. US West Texas Intermediate (WTI) crude settled at $69.22 per barrel, down $1.45 or 2.05 per cent. Brent settled more than seven per cent lower this week, marking its biggest weekly decline since September 2. WTI lost around eight per cent-the biggest since October 2023. Back home, crude oil futures settled 0.2 per cent higher at ₹5,867 per barrel on the multi commodity exchange (MCX).

Also Read: OPEC trims 2024 global oil demand forecast to 1.93 million bpd on bulk of China downgrade

Oil logs steep weekly decline: What's dragging prices?

-Brent crude futures logged its biggest weekly decline since September 2 when the Organisation of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) cut their forecasts for global oil demand in 2024 and 2025.

-In China, the world's top oil importer, the economy grew at the slowest pace since early 2023 in the third quarter, though September consumption and industrial output beat forecasts. Analysts say China is key to the demand side of the equation so that is very much weighing on prices.

-China's refinery output declined for the sixth straight month as thin refining margins and weak fuel consumption curbed processing. Analysts said the move towards the electrification of transport is also weighing on prices.

Also Read: India outperforms EM peers amid crude oil correction, softer Brent key catalyst for Nifty: Experts bet on THESE sectors

-Electric vehicle sales in China jumped 42 per cent in August and reached a record high of over one million vehicles. Meanwhile, China's central bank rolled out two funding schemes that will initially pump 800 billion yuan ($112.38 billion) into the stock market through newly created monetary policy tools.

-Analysts said Chinese data shows tentative signs of improvement, but recent briefings on additional economic stimulus left several market participants underwhelmed. The stimulus package rally might be fading away.

-US President Joe Biden said on Friday there was an opportunity to deal with Israel and Iran in a way that potentially ends their conflict in the Middle East for a while. Biden said he has an understanding of how and when Israel will respond to the missile attacks by Iran, something investors continue to anxiously wait for.

-After the killing of Hamas leader Yahya Sinwar, Lebanon's Hezbollah militant group said on Friday it was moving to a new and escalating phase as it battles Israeli troops. This dashed hopes earlier on Friday that Sinwar's death would speed up an end to escalating war in the Middle East.

Also Read: Crude View: D-Street experts peg Brent at $75-80 in near-term, Morgan Stanley cuts forecast by $5 on soft demand

-In the US, crude production smashed another record last week, according to the Energy Information Administration on Thursday, as output rose by 100,000 barrels per day (bpd) in the week to October 11 to 13.5 million bpd, from its previous peak of 13.4 million bpd first hit two months ago.

-Helping to give prices a floor, the EIA said US crude oil, gasoline and distillate inventories fell last week. US retail sales increased slightly more than expected in September, with investors still pricing in a 92 per cent chance of a Federal Reserve rate cut in November.

-The positive US economic data has helped alleviate some growth concerns, but market participants continue to monitor potential demand recovery in China following recent stimulus measures. China demand concerns still weighs on prices.

Also Read: Peak oil demand isn’t on the horizon, OPEC says

Where are prices headed?

According to the US EIA, crude oil inventories in the US unexpectedly fell by 2.2 million barrels, contrary to forecasts of a 1.8 million barrel increase. This unanticipated drop in US oil stocks provided support to prices at lower levels.

“We expect crude oil prices to remain volatile, driven by fluctuations in the dollar index and ongoing geopolitical tensions. In the current session, crude oil has support at $69.65-$69.00 and resistance at $71.00-$71.65. In INR terms, crude oil has support at ₹5,850-5,780 and resistance at ₹6,000-6,080,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.