Oil prices decline over caution on US Fed interest rates, Iran sanctions; Brent at $88/bbl

Brent futures for June last fell by 43 cents, or 0.5 per cent, to $88.92 a barrel. US West Texas Intermediate (WTI) futures for May fell by 57 cents, or 0.7 per cent to $84.86 a barrel, according to news agency Reuters. 

Also Read: FY24 Review | Brent rises 9% in last 12 months on OPEC cuts, Middle-East tensions; Will crude oil hit $100 in FY25?

Both benchmarks closed on Wednesday at their highest levels since October, having received support in recent days from the heightened geopolitical tensions and potential supply risks. Back home, crude oil futures last traded 0.94 per cent lower at ₹7,095 per barrel against a previous close of ₹7,162 per barrel on the multi commodity exchange (MCX).

What’s weighing on crude oil prices?

-US unemployment claims increased by more than expected in the last week, according to Labor Department statistics, as labor market conditions gradually ease. This came after US Federal Reserve Chair Jerome Powell expressed caution on Wednesday about the timing of future interest rate cuts, after recent data has showed higher-than-expected job growth and inflation. 

-The threat of sanctions has also capped some gains. The US on Thursday imposed new Iran-related counter-terrorism sanctions against Oceanlink Maritime DMCC and its vessels, citing its role in shipping commodities on behalf of the Iranian military.

-The US is using financial sanctions to isolate Iran to disrupt its ability to fund its proxy groups and hamper the country’s support for Russia’s war in Ukraine, said the Treasury Department. US has also signalled it could reimpose oil sanctions ahead of Venezuelan presidential elections later this year that many countries have said might not feature competitive voting.

Also Read: Expert View | Oil market oversupplied with high US output, Brent seen at $87-$92 for 2024: ShareKhan’s Mohammed Imran

-Oil’s recent gains have also followed Ukrainian attacks on Russian refineries that cut fuel supply, and concerns the Israel-Hamas war in Gaza may spread to include Iran and possibly disrupt supplies in the Middle East region.

-The joint ministerial monitoring committee meeting (JMMC) of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) kept oil supply policy unchanged on Wednesday and pressed some countries to boost compliance with output cuts. OPEC+ said some members would compensate for oversupply in the first quarter. 

-OPEC added that Russia may switch to output rather than export curbs. Iran has vowed revenge against Israel for an attack on Monday that killed high-ranking Iranian military personnel. Iran is the third-largest producer in OPEC. Analysts say that the one thing that could thwart an oil rally is if the Federal Reserve takes rate cuts off the table.

Where are prices headed?

Tensions escalated in the region after the Israeli air strike on the Iranian embassy killed its top officials. Russian supply is already tight due to OPEC+ output compliance and supply concerns from oil refineries after last month’s Ukrainian attack, according to analysts

Also Read: Explained | Why did OPEC+ members extend oil output cuts to mid-2024

.Chinese economic data released this week is also better than expected and supports oil prices. However, an increase in the US oil stocks capped gains. As per the US EIA, crude oil inventories in the US jumped by 3.2 million barrels against expected decline of 1.5 million barrels.

;;Technically, crude oil is having support at $84.20–83.40 and resistance is at $85.90-86.70. In INR crude oil has support at Rs7,040-6,940 while resistance at ₹7,215-7,280,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd

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Published: 04 Apr 2024, 10:41 PM IST