Oil snaps three-day winning streak, drops 2% on US, China growth concerns; Brent sticks to $80/bbl, MCX falls 3%

International crude oil prices snapped their three-day winning streak and fell around two per cent on Tuesday, August 27. Worries that slower economic growth in the US and China could reduce energy demand dragged prices down, especially after they surged over seven per cent in the prior three days.

Brent futures last fell $1.31, or 1.6 per cent, to $80.12 a barrel and US West Texas Intermediate (WTI) crude fell $1.30, or 1.7 per cent, to $76.12. Regarding domestic prices, crude oil futures last fell 2.14 per cent lower at ₹6,344 per barrel on the multi-commodity exchange (MCX).

Also Read: Oil climbs about 3% on Libya output cuts, Middle East conflict

What's weighing on crude oil prices?

-Analysts at energy advisory firm Ritterbusch and Associates said the complex is pulling back today as crude takes a breather from the strong $6 advance of the prior three sessions. However, this looks like a normal correction likely to be followed by a renewed upswing. Technical traders noted that on Monday, the prices of both contracts failed to break above resistance around the 200-day moving averages. 

-Oil prices rose over the past few days, with analysts pointing to the potential shutdown of Libya's oil fields, which could curtail OPEC's 1.2 million barrels per day of output, and other tensions in the Middle East following counter-attacks between Israel and the Iran-backed Hezbollah group in Lebanon in recent days. Analysts said markets remain on edge as skirmishes between Israel and Hezbollah intensify.

-Crude oil prices were also supported by growing expectations that the US Federal Reserve will cut interest rates next month. Lower rates can boost economic growth and oil demand. Traders are betting on a 25- or 50-basis point interest rate cut in September. 

-CME Group's Fed Watch tool shows a 71.5 per cent chance for 25 basis points a 28.5 per cent chance for 50 basis points. UBS Global Wealth Management sees a 25 per cent chance of a US recession, up from 20 per cent previously, citing soft numbers in the July labour report. 

Also Read: OPEC+ sticks to output policy of 5.86 million barrel pullback per day, hints at unwinding cuts from October

-US data is expected to show that energy firms pulled crude from storage last week for the eighth week of nine. That compares with a withdrawal of 10.6 million barrels during the same week last year and an average decrease of 6.3 million barrels over the past five years (2019-2023).

-Goldman Sachs cut its average 2025 Brent forecast and price range by $5 per barrel, citing slower demand in China. The bank reduced its range for Brent prices to $70-$85 a barrel, and the 2025 average Brent forecast to $77 per barrel from $82.

-In Germany, the economy shrank in the second quarter. Adding to global uncertainty, Russia warned the West was playing with fire by considering allowing Ukraine to strike deep into Russia with Western missiles. It cautioned the US that World War Three would not be confined to Europe.
 

Also Read: US Fed Chair Jackson Hole 2024 Highlights: Powell says ‘time has come’ for Fed to change policy, slash interest rates
 

Where are prices headed?

Analysts said Libya's current output is approximately 1.0 million barrels per day, and the potential halt in production has heightened supply concerns. Additionally, crude oil prices surged due to better-than-expected US durable goods orders data and the possibility of interest rate cuts, as the US Fed Chairman hinted at the Jackson Hole Symposium. 

‘’Rising tensions between Russia and Ukraine, along with delays in ceasefire agreements between Israel and Hamas, have also contributed to the support for oil prices. We anticipate crude oil prices to remain volatile. The support level is between $76.00 and $75.40, with resistance at $77.20 to $77.90. In INR terms, oil has support at ₹6,420 to ₹6,360, while resistance lies between ₹6,540 and ₹6,610,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.