London : Brent crude oil sank on Friday to a seven-month low under $70 on surging US energy stockpiles ahead of a weekend meeting of major oil producing nations. In London morning deals, benchmark oil contract Brent North Sea crude for delivery in January slumped to $69.13 per barrel, the lowest level since April. New York’s West Texas Intermediate (WTI) for December tanked to $59.28 to hit a February low.
The US benchmark had overnight entered a technical bear market, meaning that WTI has now lost 20 percent from its most recent peak last month. The fresh plunge comes as representatives from Opec and non-cartel members prepare to meet Sunday in Abu Dhabi to discuss a possible output cut to protect their revenues amid slumping prices. Since hitting four-year highs last month, crude prices have slumped on rising production, Chinese economic growth fears, and easing concerns about the impact of sanctions on Iran.
Sentiment took another hammering overnight after the US Department of Energy revealed soaring crude stockpiles, indicating weaker demand in top oil consumer the US. Washington’s decision this week to grant waivers to eight countries including China, India and Japan from US oil sanctions on Iran, has helped also to push prices south. “The recent drop in oil prices reflects a combination of factors,” Economist Intelligence Unit analyst Cailin Birch said. “For one, signs of slowing oil demand are beginning to appear; the rate of GDP growth in China is beginning to ease.
Likewise, a spate of relatively weak corporate earnings reports in the US has raised concerns that the trade barriers will be damaging to many US firms.” Birch added: “Slower than expected growth in these two markets would translate into lower oil demand, and therefore prices.” On Monday, US President Donald Trump’s administration reimposed tough sanctions on Iran’s financial institutions, shipping lines, energy sector, and petroleum products. However, worries over oil supplies from Iran — which is the second biggest Opec producer after kingpin Saudi Arabia — have diminished somewhat.
“The US government’s decision to grant waivers to some important importers of Iranian oil has reduced fears of a supply crunch from the Middle East,” said Birch. The Abu Dhabi meeting is aimed at addressing the market slump with a view to protecting the precious revenues of producer nations. However, CMC Markets analyst David Madden said that the participants would likely refrain from any immediate action.
“I do not expect much from the oil meeting,” Madden said. “The oil producers might talk about future production cuts as a way of stabilising the price, but the price needs to strike a balance — of being cheap enough to keep demand strong and keep (President) Trump happy, but not so low that their oil revenue drops drastically.” Separately, the Wall Street Journal reported Friday that a government-funded think-tank in Saudi Arabia was studying the possible impact of breaking up Opec.
Risk to inflation moderate
NEW DELHI: The decline in global crude oil prices is expected to continue, which will have a moderating impact on inflation, a report by SBI Ecoflash said. In the past one month, crude prices declined by around $16/bbl as some nations got waivers to import oil from Iran, amid signs that other OPEC members will pump more to offset any supply gap. The decline oil prices will also help the CPI inflation to remain moderate at 3.5 per cent for the next couple of months before reaching around 4 per cent by March 2019, it said.
“For October, we expect inflation at between 3.5-3.6 per cent. Furthermore, the inflation may be close to 3 per cent for November or a tad lower. There is continued deceleration in food prices particularly in rural areas. The MSP pass-through is negligible,” it said. The government needs to ensure the procurement plan is implemented aggressively ahead of the Kharif season, the report added.
