Oil sheds 5% in five days on subdued China demand, slow pace of US Fed rate cuts; Brent sits 2% lower to $71

International crude oil prices settled down more than two per cent in the previous session as investors fretted about weaker Chinese oil demand and a potential slowing in the pace of US Federal Reserve interest rate cuts after the latest macroeconomic data.

Brent crude futures settled down $1.52, or 2.09 per cent, to $71.04 a barrel. US West Texas Intermediate crude futures (WTI) settled down $1.68, or 2.45 per cent, at $67.02. For the week, Brent fell around four per cent, while WTI declined around five per cent. Back home, crude oil futures settled 1.86 per cent lower at ₹5,660 per barrel on the multi commodity exchange (MCX).

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US WTI sheds 5% in one week: What's weighing on oil prices?

-China's oil refiners in October processed 4.6 per cent less crude than a year earlier because of plant closures and reduced operating rates at smaller independent refiners, data from the National Bureau of Statistics showed on Friday.

-The country's factory output growth slowed last month and demand woes in its property sector showed few signs of abating, adding to investors' concerns over the economic and industrial health of the world's largest crude importer in Asia.

-Analysts said the headwinds out of China are persisting, and whatever stimulus they put forward could be damaged by a new round of tariffs by the incoming Trump administration who plans to put strict tarrifs on trade with China.

-US President-elect Donald Trump has pledged to end China's most-favored-nation trading status and impose tariffs on Chinese imports in excess of 60 per cent - much higher than those imposed during his first term.

-Goldman Sachs Research economists have modestly lowered their 2025 growth forecast for China, the global investment bank said in a note, following on expectations of significant tariff increases under Donald Trump's term. The bank will likely make larger downgrades if the trade war were to escalates.

-Oil prices also fell this week as major forecasters indicated slowing global demand growth. International Energy Agency (IEA) Executive Director Fatih Birol on Friday at the COP29 summit said the global oil demand is getting weaker.

-Birol believes have been seeing this for some time and this is mainly driven by the slowing Chinese economic growth and the increasing penetration of electric cars around the world. The IEA forecasts global oil supply to exceed demand by more than one million barrels per day in 2025 even if cuts remain in place.

-The Organisation of Petroleum Exporting Countries (OPEC), meanwhile, cut its forecast for global oil demand growth for this year and 2025, highlighting subdued demand in China, India and other top importers in Asia and Middle East.

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US Fed rate cut balance

-US retail sales increased slightly more than expected in October, suggesting the economy kicked off the fourth quarter on a strong note. Analysts said the economic data this morning was strong and notable so that is keeping things somewhat stable with regard to what the US demand picture should be.

-The data added to the debate among Federal Reserve policymakers over the pace and extent of interest rate cuts as investors further downgraded their expectations for a rate reduction at the central bank's December meeting.

-Lower interest rates typically spur economic growth, aiding fuel demand. US Federal Reserve Bank of Boston President Susan Collins, however, did not rule out a December rate cut when speaking on Bloomberg's television channel.

-Analysts say there is nothing forcing the Fed to get real crazy about rate cuts. The odds for a 25 basis rate cut for December have dropped to between high 50s-60 per cent. Some analysts also expect that there may not be any cut in December.

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Where are prices headed?

Analyst say crude oil production is expected to increase this year compared to earlier projections. US oil production could rise to 13.23 million barrels per day, while global production may reach 102.6 million barrels per day. Increased production, coupled with subdued demand, is likely to cap crude oil's upward momentum. 

“We anticipate crude oil prices will remain volatile this week. The support levels for crude oil are at $67.85-$67.10, with resistance between $68.95 and $69.55. In INR terms, crude oil has support at ₹5,700- ₹5,660 and resistance at ₹5,840- ₹5,895,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.