Oil loses 3% in five days due to US Fed rate cuts and weak Chinese demand; Brent falls below $73/bbl

International crude oil prices were little changed last session as markets weighed on weak Chinese demand and lower interest rate cut expectations from the US Federal Reserve following recent pressures from US inflation.

Brent crude futures closed up six cents, or 0.08 percent, to settle at $72.94 a barrel. U.S. West Texas Intermediate crude futures rose eight cents, or 0.12 percent, to settle at $69.46 a barrel. Both crude oil benchmarks ended the week about 2.5 lower. At home, crude oil futures fell 0.1 percent higher ₹5,944 per barrel on the multi-commodity exchange (MCX).

Also read: Morgan Stanley and HSBC cut crude oil supply forecast; The Brent average was near $70 for 2025 after the OPEC+ ruling

Brent lost 2.5%: what weighs on the price of crude oil?

-The US dollar retreated from a two-year high but was on track for a third straight week of gains after data showed US inflation cooled two days after the US Federal Reserve cut interest rates, but its outlook for interest rate cuts next year. A weaker dollar makes oil cheaper for holders of other currencies, while interest rate cuts could boost oil demand.

-Analysts say fears that the US Fed will give up supporting the market with its interest rate programs have disappeared. There were concerns in the market about the prospects for demand, especially when it comes to China, and if we lost monetary support from the US Fed it would be something of a one-two punch.

-China’s state-owned refiner Sinopec said Thursday in its annual energy outlook that China’s crude oil imports could peak as early as 2025 and the country’s oil consumption would peak in 2027, as demand for diesel and gasoline weakens. This will result in weak Chinese imports next year.

Also read: Shell and Norway’s Equinor to combine offshore assets to create Britain’s largest oil and gas company in joint venture

-OPEC, the Organization of the Petroleum Exporting Countries and related producers, recently cut its growth forecast for global oil demand in 2024 for a fifth month. Analysts say OPEC needed supply discipline to boost prices and calm jittery market nerves amid ongoing revisions to demand forecasts

-JPMorgan sees the oil market moving from equilibrium in 2024 to a surplus of 1.2 million barrels per day in 2025. The bank predicts that supply from non-OPEC countries will increase by 1.8 million barrels per day in 2025 and that OPEC production will remain at current levels.

-Newly elected US President Donald Trump said in his latest attack that the European Union (EU) could face tariffs if the bloc does not reduce its growing deficit with the US by making major oil and gas deals with the world’s largest economy .

Bloomberg reported Thursday that G7 countries are considering ways to tighten the price ceiling on Russian crude, such as a complete import ban or lowering the price threshold, in a way that could tighten supply.

-Russia has circumvented the $60 per barrel limit imposed in 2022 after the invasion of Ukraine through the use of its “shadow fleet” of ships, which the EU and Britain have responded to with further sanctions in recent days.

Also read: Saudi Aramco will take on more debt and focus on dividend growth, says CFO Ziad Al-Murshed after oil price drop

Where are the prices going?

Rahul Kalantri, VP Commodities at Mehta Equities Ltd, said: “Record strength in the dollar index after the FOMC meeting results and the US Fed’s aggressive guidance for rate cuts in 2025 could limit crude oil gains.”

“The US Fed guidance for rate cuts in 2025 has been reduced to 50 basis points from the November meeting of 100 basis points and could impact global oil demand. We expect crude oil prices to remain volatile. Crude oil has support at $69.05-68.60, and resistance is at $70.30-71.00. In INR, crude oil has support on ₹5,940-5,880 while resistance is at ₹6,060-6,140,” Kalantri added.

“Prices retreated from their all-time highs as the dollar rose to a two-year high of 108.3 following the release of the closely watched Fed dot plot projections, which indicated several officials now expect fewer rate cuts next year. Fed officials are now anticipating it. Inflation will take longer to reach its two percent target,” said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

Disclaimer: The views and recommendations expressed in this analysis are those of individual analysts or brokerage firms, not Mint. We strongly advise investors to consult certified experts, consider individual risk tolerance and conduct thorough research before making investment decisions as market conditions can change rapidly and individual circumstances may vary.