Oil prices fell about 3 per cent to their lowest since late August on Tuesday, November 7, as demand concerns arose from mixed Chinese data and waning investor enthusiasm on interest rate cuts. 

Trade data from the world’s largest crude importer showed a precarious economic recovery as overseas shipments missed expectations, dropping 6.4 per cent, while imports increased by 3 per cent from a year earlier last month.

Brent crude futures fell $2.53, or 3 per cent, to $82.65 a barrel, while US West Texas Intermediate crude fell to $78.35 a barrel, down $2.47, or 3.1 per cent. Both contracts hit their lowest levels since August 25, and Brent futures were set to close below $84 a barrel for the first time since Hamas Islamists' October 7 attack on Israel, according to news agency Reuters.

Crude is trading below its levels from before the Israel-Hamas war, which has failed to disrupt supplies from the Middle East. The premium on front-month loading Brent contracts over ones loading in six months was also at a 2-1/2-month low, indicating that market participants are less concerned with the current supply deficits, said the agency.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a November 17 expiry, was last trading lower by 4.66 per cent at ₹6,508 per bbl, having swung between ₹6,504 and ₹6,730 per bbl during the session so far, against a previous close of ₹6,826 per barrel.

What's weighing on crude prices?

-On the demand side, China's crude oil imports in October showed robust growth both year on year and month on month, but its total exports contracted at a quicker pace than expected. The expectations of crude run reductions by China-based refiners between November and December could also limit oil demand and exacerbate price declines.

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-World shares, which often trade in tandem with oil, lost steam on Tuesday as investor enthusiasm about a peak in global interest rates faded. The US dollar has also ticked up from recent lows, making oil more expensive for holders of other currencies.

-Last week, the US Federal Reserve decided to keep the key overnight interest rates unchanged at 5.25-5.50 per cent. Jerome Powell-led Federal Open Market Committee (FOMC) held interest rates steady at a 22-year high for the second time in a row, even as the US economy remains resilient despite high interest rates while inflation still remains above the Fed's 2 per cent target level.

-Minneapolis Federal Reserve President Neel Kashkari on Tuesday doused hopes of early rate cuts, saying the US central bank may have to do more to bring inflation back down to its 2 per cent target. Investors are awaiting comments from Fed Chair Jerome Powell, who is due to speak on Wednesday and Thursday.

-Markets are also waiting to see if Saudi Arabia and Russia are ready to rein in production voluntarily beyond the end of the year in addition to a broader deal among the OPEC producer group. The current supply cuts of 1.3 million barrels per day will continue till the end of 2023.

Where are prices headed?

Analysts noted that crude oil prices recovered from 3-month lows in the international markets after hefty fall in the last two weeks. Crude oil prices recovered after Saudi Arabia and Russia reaffirmed on Sunday that its voluntary output cuts remain continue until end of this year. 

Crude prices also recovered after decline in the US oil rig counts last week. However, recession fears in the European Union and easing Israel-Hamas war premium limited gains of crude oil. 

‘’We expect crude oil prices remain volatile in today's session. Crude oil is having support at $81.30–80.50 and resistance is at $82.70-83.40. In INR crude oil has support at Rs6,740-6,650 while resistance at ₹6,895-6,960,'' said Rahul Kalantri, VP Commodities, Mehta Equities.