Oil prices declined on Tuesday, November 21, reversing steep gains made in the past two sessions, as investors turned cautious ahead of the oil output policy decision by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) this Sunday when the producer group may discuss deepening supply cuts due to slowing global growth.

Both oil contracts had climbed about 2 per cent on Monday. Brent crude futures was down 55 cents, or 0.7 per cent, to $81.77 a barrel, while US West Texas Intermediate crude futures fell by 54 cents, or 0.7 per cent, to $77.29. 

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a December 18 expiry, was last trading lower by 1.12 per cent at ₹6,470 per bbl, having swung between ₹6,420 and ₹6,500 per bbl during the session so far, against a previous close of ₹6,543 per barrel.

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What's driving crude oil prices?

-Between now and the weekend meeting, traders will get fresh insights into US fundamentals with the release of official figures on crude and product stockpiles. Nationwide crude inventories have expanded for the past four weeks to the highest since August.

-A decline in international crude oil prices will help control India's inflationary pressures going forward, the country's finance ministry said in a report on Tuesday. India's retail inflation eased in October to a four-month low of 4.87 per cent, edging closer to the Reserve Bank of India's target of 4 per cent.

-India's crude oil basket has averaged $83.93 a barrel in November so far, compared with $90.08 a barrel in October, showed government data. "The decline in international crude oil prices and continued moderation in core inflation are likely to control inflationary pressures going forward," the monthly economic report said.

-The oil market is "on edge" over the latest crisis in the Middle East, the head of the International Energy Agency (IEA) Fatih Birol said at an energy conference in Norway on Tuesday. Birol also said that global oil stocks are at low levels.

-The war in Gaza between Israel and militant Palestinian group Hamas has not currently had a significantly effect on market prices, he added. However, "if one or more of the oil producing countries in the region is directly involved in the conflict, we may see the implications of that," said Birol.

Where are prices headed?

Oil analysts believe that Saudi Arabia and Russia might extend their voluntary output cuts beyond December 2023 to stabilize global crude oil prices. The upward momentum in crude oil prices was further fuelled by the weakening dollar index and an improvement in investor risk appetite. 

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The US equity markets reaching multi-week highs provided additional support to crude oil prices. China's decision to keep its 1-year and 5-year prime loan rates unchanged on Monday also contributed to the positive sentiment surrounding crude oil prices, according to analsyts.

‘’Expectations are for crude oil prices to remain volatile. The support for crude oil is identified at $77.10–76.50, with resistance noted at $78.50-79.20 in today's trading session. In terms of INR, crude oil finds support at ₹6,450-6,370, while resistance is anticipated at ₹6,632-6,600,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.