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Fears of recession and a weaker demand outlook cause global crude oil prices to fall

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Crude oil prices worldwide have fallen after falling from their previous highs. This is due to fears about a global economic recession, as well as tight monetary policy and a likely weak demand outlook. The prices also fell due to the ongoing Covid-led lockdown in China.
Due to the recession fears and aggressive tightening of monetary policy by central banks, international crude oil prices also fell
West Texas Intermediate (WTI), crude oil futures trade at $110 per $1, compared to its peak of $123 per $13.
Tapan Patel, Senior Analyst for Commodities at HDFC Securities, stated that near-term support is at $98/barrel and resistance at $123/barrel.
Notably, prices for the global key commodity have soared due to supply chain disruptions as well as trade sanctions following Russia’s invasion in Ukraine in February.
“Crude Oil Prices have seen a sharp decline after flirting at $123 a bar for WTI crude oil, despite significant supply constraints. Last week, the US Department of Energy issued the fourth Notice of Sale of 45 Million Barrels of Crude Oil from the Strategic Petroleum Reserve.” Sugandha Sachdeva is VP- Commodity and Currency Research at Religare Broking.
Sachdeva also stated that the Organization of the Petroleum Exporting Countries, (OPEC), and its allies have agreed on a rise in output of nearly 648,000 barrels per hour in July and August. This is almost two-thirds greater than the previous planned increases of 432,000 barrels a daily.
The crude oil prices have likely been affected by the agreement to increase output.
While this move does not compensate for the Russian production decline that has been slowed by Western sanctions, it is one of many factors that has caused oil prices to drop from their multi-year highs. Sachdeva stated that there are growing concerns about global growth due to the aggressive rate rise campaign of key central banks in fighting inflation. However, the overall outlook for crude oil is positive. Prices will see support at $107 per barrel, then $98 per barrel. Key resistance is $130 per barrel.
As the pressure on their margins decreases, a drop in crude oil prices can be a good thing for oil marketing firms. But, this would only be possible if prices drop for a long time. This is not the case right now.
Naveen Matur, Director – Commodities and Currencies at Anand Rathi Shares and Stock Brokers said that OMCs have been squeezed by low margins due not to a hike in fuel prices and higher oil price. This has caused shares of BPCL and HPCL to plummet to new 52-week lows. On the back of possible losses in the next quarters, shares could continue to plummet.”
“The supply constraint is unlikely to subside anytime soon because OPEC has not been able to make up the capacity loss. Even if they do want to, they may not be able to. Sriram Iyer is a Senior Research Analyst at Reliance Securities. “OPEC might be trying to make up for the losses they have suffered in the last two years and want some profits to be shared among shareholders,” Sriram Iyer said.
Iyer stated that the current correction in crude oil price is temporary as tightening supply will outweigh worries about slowing global demand. Iyer estimated that crude oil support would be $100 per dollar.
At an event, Dr Ali Chegeni, Ambassador of Islamic Republic of Iran, stated that India was ready to meet its energy needs through a rupee-rial trading mechanism for oil and gas exports.
Notable is the sharp decline in bilateral trade between India-Iran after US sanctions were imposed on the west Asian country.
An analyst from a domestic brokerage firm said that the Indian government should be importing crude oil aggressively and heavily, regardless of which producing countries they are coming from, in order to safeguard the country’s best interests and avoid any possible energy crisis, despite the sanctions imposed by the West.
India maintains its approach to Russian oil imports is guided by energy security and other regions and countries have made similar policy decisions in recent years.

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