 "Crude Oil remains in 'buy on dips' mode; US CPI inflation data eyed")
OPEC remains optimistic about oil demand for 2024
WTI Crude oil prices recovered to trade above $82.50 on Thursday, after moderating in last few trading sessions and testing two weeks low of $81.25/b due to ease of geo-political risk amid ceasefire talks going between Hamas and Israel.
while, weak set of economic data from China and US prompted markets of possible demand worries in coming quarter; the growing optimism around a possible interest rate cut in September from US Fed, which is keeping kept dollar under pressure and lending support to overall commodities.
Crude prices Wednesday rebounded from a 1-1/2 week low and moved higher after weekly EIA crude inventories unexpectedly declined.
EIA weekly report
The weekly numbers were of mixed bag as on the bullish side, EIA crude inventories unexpectedly fell -3.44 million bbl. Also, EIA gasoline supplies fell -2.0 million barrels, and crude stockpiles at Cushing, the delivery point for WTI futures, fell -702,000 bbl. On the bearish side, EIA distillate inventories rose +4.88 million barrels, a larger build than expectations of +500,000 bbl. Also, US crude production in the week ended July 5 rose to 13.3 million bpd and matched a record high.
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OPEC Monthly report
OPEC crude oil output averaged 26.57m b/d in June, down 80k b/d MoM. OPEC kept its outlook unchanged as with demand growth forecasts, expecting demand to grow by 2.25m b/d YoY in 2024 and then by a further 1.85m b/d in 2025. Non-OPEC+ supply growth was also left unchanged at 1.23m b/d for 2024 and 1.1m b/d for 2025.
This decline was driven largely by Saudi Arabia and Iraq. Meanwhile, OPEC+ output in June (which includes the likes of Russia) fell by 125k b/d MoM to 40.8m b/d. Russia was the main driver behind this decline with its output falling 114k b/d MoM to 9.14m b/d.
Demand weakness
In recent weeks demand may have flipped as could be seen from reduced crude exports from Russia, as crude exports in the week to July 7 fell by -990,000 bpd to 2.67 million bpd, the lowest in over five months.
While data compiled by Bloomberg shows that in the week ending June 28, only 86 global oil tankers indicated China as their next destination in the coming three months, five fewer than the prior week and the lowest weekly tally since August of 2022, these developments have led prices to consolidate from the $85 levels.
However, the US gasoline demand on a four-week average also improved to the highest since 2021 seasonally, and inventories of the motor fuel fell to the lowest since May.
Data in Focus
US June CPI will be out today, and consensus is looking for a 0.2 percent monthly rise and 3.4 per cent annual gains in the crucial monthly core CPI reading. If the actual print comes in line with these expectations, then the market could increase the bets for a September rate cut to be fully priced in from 78 per cent now.
This could lead to a rally in risk assets, while the US dollar could face downside pressures. If the core CPI print is however above 0.3 per cent MoM, that could see some USD buying and equity and bond selling as markets pushback on rate cut expectations again.
Outlook
The global oil market balance to see marginal deficit due to OPEC+ relentless efforts of output cuts, while demand is expected to slowdown from US once summer season over and China is still far from economic recovery, so we expect prices to remain range bound in between $82-$87 though Q3.
In short term prices will remain buy on dips as US summer season along with US hurricane season and rate cut optimism will keep hot money flowing into the energy sector. Short term prices could range between $80-$85.
WTI Crude oil Aug :Support: $81, Resistance : $85
MCX Crude Jul: Support : 6750 , Resistance : 7100
Disclaimer: Mohammed Imran - Research Analyst, Sharekhan by BNP Paribas, views expressed are personal.