Oil prices plunge to three-month low amid soaring US crude supplies, global economic concerns

Oil markets witnessed a sharp decline on Wednesday, November 8, with prices plummeting to their lowest point in over three months. The primary factors contributing to this downturn were a substantial increase in US crude oil inventories and mixed economic data from China, which raised concerns about the global demand for crude oil.

The international benchmark, Brent crude futures, dropped by 25 cents, settling at $81.36 per barrel, while US crude futures saw a steeper decline, falling 35 cents to reach $77.02 per barrel. These price levels marked the lowest since July 24, setting a worrying tone for the oil market.

The key driver of this sudden slump was the significant build in US crude oil supplies, as reported by industry data. According to market sources citing American Petroleum Institute figures, US crude oil stocks surged by nearly 12 million barrels in the past week. This surge in supply placed substantial pressure on oil prices, pushing them down.

Moreover, concerns about the global economy's performance and its impact on crude oil demand played a significant role in this price decline. While geopolitical tensions in the Middle East, particularly the Israel-Hamas conflict, were a notable factor, they were overshadowed by the broader economic picture.

In an interview with CNBC-TV18, Rajat Bhattacharya, Senior Investment Strategist at Standard Chartered, shared his insights on the situation. He emphasised the positive aspect of the oil drawdown in the current market environment, highlighting the direct link between oil prices and inflation—an issue of significant concern for policymakers.

Bhattacharya also noted that this news is particularly beneficial for India, given the oil imports.

However, he cautioned that the geopolitical situation in the Middle East remains volatile. Global leaders are actively working to prevent an escalation of the Israel-Gaza conflict, but tensions persist. This ongoing uncertainty in the region continues to influence oil prices.

Nilesh Shah, Managing Director of Kotak Mahindra AMC, pointed out that the geopolitical tensions in the Middle East had previously led to expectations of oil prices tripling, but there have been unexpected developments.

The US's decision to lift sanctions on Venezuela, a country with substantial oil reserves, has contributed to keeping oil prices within a certain range. This move has significant implications, especially given Venezuela's substantial oil production compared to Saudi Arabia.

in India, oil marketing firms such as HPCL and BPCL are seeing a spike in their share price due to the drop in crude oil prices.

Even though HPCL has its own specific reasons, such as outperforming expectations in September quarter results. The company's operating margin, at 8.6% exceeded projections of 5.2%. The operating profit also surpassed expectations, coming in at ₹8,217 crore, well above the projected ₹6,329 crore.

During the quarter, the gross refining margin was reported at $13.3 per barrel, marking an increase of $5.9 compared to the previous June quarter and a $4.9 increase from the previous year.

Following a 6% gain at the end of Tuesday's trading session, the company's shares have risen another 6.5% on Wednesday, November 8. This marks the stock's most impressive performance in 2023 thus far.

Watch: CNBC-TV18’s Manisha Gupta with an update on what’s happening in the world of commodities

The stock has been on an upward trajectory for nine consecutive days, marking its longest winning streak since May of this year when it saw gains for 11 consecutive trading sessions. The cumulative result of this nine-day winning streak has led to a 22% increase in the stock's value.

Watch | Ole Hansen, the Head of Commodity Strategy at Saxo Bank, discusses precious metals and crude oil

Out of the 32 brokerage firms that monitor HPCL, 18 recommend a "buy," eight suggest "hold," and six have issued a "sell" rating for the company.

For more details, watch the accompanying video