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Business News/ Markets / Commodities/  Oil scores weekly gain as Middle East crisis offsets China demand concerns; Brent settles lower at $78/bbl
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Oil scores weekly gain as Middle East crisis offsets China demand concerns; Brent settles lower at $78/bbl

In China, slower-than-expected economic growth in the fourth quarter raised doubts about forecasts that demand there will drive global oil growth in 2024.

FILE PHOTO: A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia. REUTERS/Alexander Manzyuk/File Photo (REUTERS)Premium
FILE PHOTO: A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia. REUTERS/Alexander Manzyuk/File Photo (REUTERS)

Oil prices settled slightly lower in the previous session but recorded a weekly gain as Middle East tensions and disruptions to oil output offset concerns about the Chinese and global economies. In China, slower-than-expected economic growth in the fourth quarter raised doubts about forecasts that demand there will drive global oil growth in 2024.

Brent futures settled 54 cents lower at $78.56 a barrel. US West Texas Intermediate crude fell 67 cents to settle at $73.41. For the week, Brent gained about 0.5 per cent while the US benchmark rose over one per cent, according to news agency Reuters.

Also Read: ‘Oil markets well supplied’, says IEA as it raises 2024 global demand forecast; projects lower than OPEC

The premium of the first-month Brent contract to the six-month contract rose to as much as $2.15 a barrel on Friday, the highest since November. This structure, called backwardation, indicates a perception of tighter supply for prompt delivery.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a February 16 expiry, settled 0.28 per cent higher at 6,045 per bbl, having swung between 6,084 and 6,213 per bbl during the session, against a previous close of 6,106 per barrel.

What's driving crude oil prices?

-Analysts said that the Chinese equity market this week dropped to near a five-year low. The indication for weaker demand drove crude prices down on Friday. In the Middle East, geopolitical risks supported prices for the week.

-On Friday, tensions escalated in Gaza as Israeli forces pushed south against Hamas militants, while earlier in the week, the US launched new strikes against Houthi anti-ship missiles aimed at the Red Sea.

-Although conflict in the Middle East has not shut any oil production, supply outages continued in Libya. In the US, about 30 per cent of oil output in North Dakota, the country's third largest producing state, remained shut due to extreme cold. The output had been cut by some 700,000 bpd, or more than half, midweek.

-The International Energy Agency (IEA) this week raised its 2024 global demand forecast, but its projection is half that of producer group Organisation of Petroleum Exporting Countries (OPEC). The Paris-based agency also said that - barring significant disruptions to flows - the market looked reasonably well supplied in 2024.

-Last week, OPEC said in its monthly report that it expects a demand growth of 2.25 million bpd this year, unchanged from its forecast in December. The producer group also said oil demand is expected to rise by a robust 1.85 million bpd in 2025 to 106.21 million bpd.

Where are prices headed?

Crude oil prices experienced a significant surge in a tumultuous session on Thursday, driven by escalating tensions in the Middle East, a decrease in US oil stocks, and heightened global oil demand forecasts. Adding to the geopolitical complexities, Pakistan initiated retaliatory airstrikes over Iran, resulting in the loss of at least nine lives and further escalating tensions in the region.

Meanwhile, US crude oil inventories saw a notable decline of approximately 2.5 million barrels, surpassing the anticipated decrease of 0.6 million barrels for the week ending January 12, providing additional support to crude oil prices. 

‘’Anticipating continued volatility, we project that crude oil prices will remain unpredictable. The support level for crude oil is identified at $73.10–72.40, with resistance expected at $74.35-74.90. In terms of INR, crude oil finds support at 6,080-5,980, while resistance is positioned at 6,240-6,310,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: 20 Jan 2024, 08:57 PM IST
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