MC explains: Despite a limited supply and war, oil prices are dropping.

 MC explains: Despite a limited supply and war, oil prices are dropping.

The battle between Israel and Hamas is still ongoing, as crude futures are now trading at around $82 per barrel after reaching $91.39 per barrel on October 16.

The range of prices for Brent oil futures on November 15 was $82.34–$82.79 per barrel.

The price of a barrel of crude oil has dropped by almost $10 in the last month, despite the unrest in West Asia.

The range of prices for Brent oil futures on November 15 was $82.34–$82.79 per barrel. On October 16, prices surged to $91.39 a barrel as worries about the worsening violence between Israel and Hamas intensified.

What caused the decline in oil prices, and how does it affect the home market? As Moneycontrol clarifies.

Why have the prices of crude oil suddenly dropped?

Since the conflict in West Asia hasn't had a major effect on the energy market, crude oil prices have dropped below levels seen in October. Gaza produces no oil, and Israel produces very little. Still, there is reason for worry over the volatility in the area that provides almost one-third of the world's crude oil.

Concerns about demand, slower growth in major countries, and a potential rise in global oil output as the US relaxed sanctions on Venezuela all contributed to price declines.

The Organization of the Petroleum Exporting Countries (OPEC) member Venezuela was subject to US sanctions in 2019 after President Nicolas Maduro declared victory in an election that the US believed to be rigged.

That being said, why have prices increased?

Concerns that Hamas's major strike on Israel on October 7 may disrupt Gulf supply caused crude oil prices to spike by almost 5%. But because the fighting had no direct effect on oil supply, prices fell.

Due to limited supply, crude oil prices were already high before to the unrest in West Asia. The largest oil producers, Saudi Arabia and Russia, declared further production reductions from July until the end of 2023, which caused prices to surge. In July, Russia reduced exports by 300,000 barrels per day (bpd), while Saudi Arabia reduced output by one million bpd.

Why is there little demand?

Prices have decreased because of worries about demand and global economic development, notwithstanding supply shortages and wars.

Because of its economic problems, China, the world's top energy importer, continues to have low demand. Chinese refiners have requested reduced supplies from Saudi Arabia for December, according to a report by Reuters.

In the meanwhile, estimates of oil consumption for this year and 2024 were increased by OPEC and the International Energy Agency. The world's oil demand is expected to expand to 2.46 million barrels per day in 2023, 20,000 barrels per day higher than predicted by OPEC, which said that the fundamentals of the oil market remain robust. The International Energy Agency (IEA) has revised its projection for global demand growth from 2.3 million bpd to 2.4 million bpd.

How does this affect India?

India is directly impacted by the price of crude oil internationally since over 85% of its crude oil needs are met by imports. State-owned oil refining enterprises benefited from low oil prices; they reported enormous losses in the previous fiscal year, but they have become profitable in recent quarters.

In Q2FY24, Indian refiners reported a combined net profit of Rs 27,295 crore. Customers could profit from their robust performance in the event that domestic gasoline costs drop.

The retail gasoline rates have not been altered by Indian Oil Corporation, Bharat Petroleum Corporation, or Hindustan Petroleum Corporation as of April 2022.