Crude Oil: Check key trading strategy on July 02, target price and more

Strong US summer demand and Hurricane threats drive WTI higher 

Crude oil prices at $83.50, hover near two months high driven by the renewed geo-political risk in the middle east and red sea region along with the threat of Hurricane Beryl. Oil prices gained 2 per cent on Monday, followed by 6 per cent in June and are up 16 per cent YTD.  

Macro data

Monday's global economic news was mostly positive for energy demand and crude prices.  On the positive side, China’s private sector remained in expansion in June, ,the Jun non-manufacturing PMI fell -0.6 to 50.5, weaker than expectations of 51.0 and the slowest pace of expansion in 6 months. 

Also, the Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6. On the negative side, the Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1 while construction spending has declined by 0.1 per cent.

Shift in supply fundamentals

The drilling activities in US have slowed further with the latest data from Baker Hughes showing the oil rig count falling by 6 over the week to 479 active rigs - the lowest since December 2021 and the weekly oil floating storage data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -24 per cent w/w to 73.29 million bbl as of June 28.

OPEC+

Earlier we have seen that OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies.

OPEC+, on June 2, 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. A decrease in OPEC crude output is positive for oil prices. OPEC June crude production fell -80,000 bpd to 26.98 million bpd.
 

But Russia is expected to throw a surprise for June data as Higher than-expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8 per cent above its agreed target of 9.049 million bpd.  

Outlook

We continue to hold a bullish stance on crude oil as the outlook for declining US crude output is propping up oil prices amid the Friday’s rigs data. Also, heightened tensions in the Middle East are giving crude prices a boost, with Israel close to a full-blown war with Hezbollah in Lebanon and with Houthi rebels in Yemen stepping up their attacks on commercial shipping in the region.

The WTI backwardation curve has steepened with a spread of above $1 between current month and front month contract signalling tight market conditions. The immediate support for WTI is around $81.69 and expect it to test the resistance of $85. We expect crude oil to make fresh highs for the year in Q3 led by strong Asian demand.

WTI Crude oil Aug: Support: $81.65, Resistance : $85

MCX Crude Jul: Support : 6,750 , Resistance : 7.100

(Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.)