Crude prices remain volatile on mixed developments

Crude oil prices remained volatile last week even as Brent crude touched four-year high on Wednesday. Supply concerns from Iran, increased US stockpiles and reports about Russia and Saudi Arabia raising production kept the crude counter busy. Speculators and hedge funds too were active in the market, making most of the volatility.

On Wednesday, Brent crude moved up 1.8 per cent to settle at $86.29 a barrel after hitting $86.74 a barrel, the highest level since October 30, 2014. Brent crude had risen from below $82 a barrel in the beginning of the week. On Wednesday, WTI crude was up 1.6 per cent at $76.41 a barrel, after touching a session high of $76.90 a barrel.

The market has been reacting to the November 4 deadline of the US administration for the global buyers to stop purchasing crude oil from Iran as part of the US sanctions.

According to Hitesh Jain, analyst, commodities, India Infoline, Iran had produced around 3.8 million barrel per day in 2017 and had exported 2.4-2.5 million barrel per day. Since April this year the exports have been falling.

The market is expected to remain volatile till it gets clarity on what will be the ultimate drop in Iranian exports and to what extent other oil producers will fill the gap.

On Thursday, Brent futures fell $1.65 a barrel (1.9 per cent) to $84.64 a barrel and US futures were down 2.7 per cent at $74.33 a barrel.

Among the factors that pulled down the crude prices were the talk that Russia and Saudi Arabia reportedly reached an agreement to produce more in order to cover the shortage in supply from the part of Iran after sanctions. Both Organization of the Petroleum Exporting Countries (Opec) and non-Opec members have been making a production cut to lift the subdued crude prices.

There were also reports from Saudi Arabia claiming that it has raised output in October and will further hike production in November. Saudi Arabia at present produces 10.7 million barrels per day. Iran, on the other hand, accused the two countries of breaking the production cut agreement.

Meanwhile, the US Energy Information Administration (EIA) reported a huge increase in weekly crude oil inventories. The total US stockpiles of crude and petroleum products climbed to 1.25 billion barrels, the highest level in 10 months.

Ahead of the sanctions, buyers of Iranian crude, including China and India, have been stocking up inventories from the Middle Eastern country and cutting imports from the US.

In September, Indian buyers increased purchases of Iranian crude to 502,000 billion per day, up 111,000 billion per day over August. Similarly, Iran’s crude exports to China increased by 29,000 billion per day to 620,000 billion per day last month. The Indian oil refiners buy Iranian crude at $3-5 a barrel discount compared to that from other parts of Middle East.

Increased import from Iran brought down shipments from the US. As per the data from Kpler, India purchased 84,000 barrels per day from the US in September and it was 75 per cent down from a record high of 347,000 billion per day in June. Throughout the week, hedge funds and speculators were active in the market, buying at dips and pushing prices up. Speculators have built bullish long positions on hopes of further price rise.

However, analysts do not expect Brent prices to go up to $100 per barrel as the fundamentals are not that supportive. If Saudi Arabia and Russia make up for the losses from Iran after sanctions, prices would remain within a range.