Oil prices reclaimed some ground on Thursday, December 7, after tumbling to a six-month low the previous day, but investors remained concerned about sluggish demand in the United States and China. In the previous session the oil market was spooked by data showing US output remains near record highs even though crude inventories declined

Brent crude futures were up 60 cents, or 0.8 per cent, at $74.90 a barrel. US West Texas Intermediate crude futures rose 56 cents, or 0.8 per cent, to $69.94. Yesterday, prices dropped to six-month low after US inventory data. On Tuesday, both benchmarks settled at their lowest since July 6, a fourth straight session of losses.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a December 18 expiry, was last trading higher by 0.05 per cent at ₹5,823 per bbl, having swung between ₹5,820 and ₹5,892 per bbl during the session so far, against a previous close of ₹5,820 per barrel.

What's driving crude oil prices?

-US gasoline stocks rose by 5.4 million barrels last week to 223.6 million barrels, Energy Information Administration data showed on Wednesday, far exceeding expectations for a 1 million barrel build.

-Concerns about China's economy also put a lid on oil's price gains. Chinese customs data showed that crude oil imports in November fell 9 per cent from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

-While China's total imports dropped on a monthly basis, exports grew for the first time in six months in November, suggesting the manufacturing sector may be beginning to benefit from an uptick in global trade flows.

Russia, Saudi Arabia urge all OPEC+ nations to join oil output cuts ‘for the good of global economy’

-Ratings agency Moody's put Hong Kong, Macau and many of China's state-owned companies and banks on downgrade warnings on Wednesday, only a day after it put a downgrade warning on China's sovereign credit rating.

-Oil prices have fallen by about 10 per cent since the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced a combined 2.2 million barrels per day (bpd) in voluntary output cuts for the first quarter of next year.

-Saudi Arabia and Russia, the world's two biggest oil exporters, on Thursday called for all OPEC members to join an agreement on output cuts ‘’for the good of the global economy''. Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation on Wednesday.

-OPEC member Algeria on Wednesday said it would not rule out extending or deepening oil supply cuts. Russian Deputy Prime Minister Alexander Novak on Tuesday said the producer group stood ready to strengthen oil supply cuts in the first quarter of 2024 to eliminate what he described as speculation and volatility.

Stock Picks: ONGC, Oil India among top picks for Motilal Oswal in upstream sector, Indian Oil among OMCs

Where are prices headed?

Analysts noted that the drop to a six-month low was attributed to the strengthening dollar index and concerns over Chinese demand. The dollar index saw further gains following Moody's revision of China's growth outlook.

Reaching beyond the 104 marks once more, the dollar index was boosted by a modest increase in US ADP non-farm employment. The unexpected drawdown in US crude inventories could provide some support to prices at lower levels. 

‘’Anticipating ongoing volatility, we project crude oil prices to remain unpredictable. The support levels for crude oil stand at $68.85–68.10, with resistance at $70.70-71.40. In terms of INR, crude oil finds support at ₹5,740-5,660 and faces resistance at ₹6,890-5,970,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.