Crude oil strategy for Budget 2024 day: WTI eyes breakout, next target: $82

Budget 2024-25: How to trade WTI crude oil today? Find out strategy, key levels here

China's economic slowdown weighing on Oil demand 

Oil prices extended selloff on Monday to settle at six weeks low, on concern that global economic slowdown will choke the incremental crude oil demand. Meanwhile, US political uncertainty increased after President Biden, on Sunday, dropped out of the presidential race and endorsed Vice President Harris. WTI has declined over 2 per cent in the last five days but is still holding up around 10 per cent for the year.

The weekly floating storage of crude oil held worldwide on tankers, that have been stationary for at least a week, fell -20 per cent week-on-week to 74.53 million barrels as of July 12, which is supportive for prices, along with Canada’s wildfire, which threatens to curb nearly 500,000 bpd of crude oil sands output and pipeline shipments to the US.

China’s Economic slowdown

The second-quarter data disappointed global markets as China GDP missed the growth target of 5 per cent to came in 4.7 per cent, with retail sales in June increasing at the slowest pace since 2022. This slowdown in consumer spending contrasts with export growth, highlighting an imbalance. 

The slowdown in China’s property sector has been a major headwind for major industrial commodities demand this year. China, the world’s biggest oil importer, saw a decline in crude arrivals in the first half of the year, while boosting stockpile volumes, weak refining margins and poor fuel demand led to an 11 per cent drop in China’s total fuel oil imports in the first half of 2024. Imports totalled 11.95 million metric tons, or approximately 75.88 million barrels. 

Monthly imports significantly declined towards the end of the second quarter, with June imports down 31 per cent from May and 45 per cent from a year earlier. The IEA’s recent monthly report also noted that weak Chinese consumption is slowing global oil demand growth, a concern for the energy sector. Last year, China accounted for 70 percent of global demand growth, which is expected to drop to around 40 percent in 2024 and 2025.

The tepid imports and growing inventory volumes challenge the bullish demand forecasts for 2024 from the Organization of the Petroleum Exporting Countries (Opec) and the International Energy Agency (IEA). The IEA highlighted that China’s declining influence on global demand is evident.

OPEC+ output cuts

OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. On June 2, OPEC+ extended the 2 million bpd of voluntary crude production cuts into Q3 but said they would gradually phase out the cuts over the following 12 months, beginning in October. OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025. Also, the UAE was given a 300,000-bpd boost to its production target for 2025.

Declining Russian exports amid drone attacks

Russian crude oil exports have been hampered by the widespread damage from Ukraine’s drone strikes. Russian refineries reduced their throughput by 4 per cent year-on-year to 5.3 million b/d. Russia’s crude oil exports have plunged to a 7-month low, averaging only 3.1 million b/d over the past four weeks, coming on the back of the country’s growing Opec+ compliance and a recovery in domestic refining.

EIA crude inventory data

Last week's EIA report showed that US crude oil inventories as of July 12 were down 4.7 per cent below the seasonal 5-year average, gasoline inventories were tad up 0.03 per cent above the seasonal 5-year average, and distillate inventories fell 6.7 per cent below the 5-year seasonal average. US crude oil production in the week ending July 12 was unchanged W-o-W and matched a record high of 13.3 million bpd.

Outlook

Oil prices may have been confined to a tight range this month, but an array of signals from the physical market suggest the next move could be a break to the upside. Global inventory drawdowns are set to decelerate markedly in the fourth quarter, but will keep oil prices in tight range in the short term as China’s economic growth stutters and supplies from across the Americas continues to swell. 

Rising concerns about Chinese demand are starting to weigh on global oil markets. Opec+ cuts should ensure that the market tightens in the current quarter. However, how tight it will get will depend on how Chinese demand evolves.

WTI Crude Oil Sep: Support: $76.7, Resistance: $82

MCX Crude Aug: Support: 6,450, Resistance: 6,750

==================
Disclaimer: Mohammed Imran - Research Analyst, Sharekhan by BNP Paribas, views expressed are personal.