Crude oil strategy for June 11: Trend remains weak, WTI eyes support at $76

OPEC monthly report in focus 

Crude oil prices rallied on Monday with WTI positing its largest one-day gain since February to settle at $77.74/b, highest in a week, on expectation of higher energy demand in coming weeks. 

Oil prices are moving higher after posting three straight weekly declines following Opec+ decision on June 2. The cartel agreed to keep overall production curbs in place through the end of 2025 while beginning to unwind another layer of voluntary cuts of 2.2 million barrels a day over 12 months beginning in October.

Prices have also found some support after US Energy Secretary Jennifer Granholm told media that the US could hasten the rate of replenishing the Strategic Petroleum Reserve as maintenance on the stockpile is completed by the end of the year. The replenishment of the SPR is needed after President Joe Biden ordered the sale of 180 million barrels over six months in 2022 in an effort to control fuel prices after Russia's invasion of Ukraine.

We think the markets have over-reacted to the Opec+ decisions, and punished oil prices to trade at four-month lows last week. Opec will release its monthly report for May today and the early survey for May month production showed that Opec members supplied 26.63 million barrels per day in May, up 145,000 barrels per day from April. 

While Russia reports deepest oil cut in a year of 683,000 barrels, but still pumps above target as Moscow pledged to reduce its daily output in May by 0.9 million barrels from the baseline level of 9.949 million barrels. Opec's demand growth estimate of 2.2 million barrels a day for 2024 is double that of the IEA.

However, on the brighter side, the strong labour market report from US infused confidence of a stronger summer driving demand, although the gasoline demand had dipped to 8.9 mbpd from 9.14 mbpd a week prior. With higher US wage growth, we expect consumer spending remain robust in coming months, but the Opec+ decision to revive supply and weaken the compliance with quotas, and supply growth outside Opec led by the US, which is pumping above 13.1 mbpd over last four weeks, remain overhang.  

Data in focus

The two days US Fed’s monetary policy becomes the limelight of the week for cues on when the Fed may start reducing interest rates. This would be followed by US CPI number for May. Traders would also be waiting for monthly oil supply and demand data from the US Energy Information Administration (EIA) and Opec on Tuesday and the International Energy Agency (IEA) on Wednesday.

Outlook

Although prices have recovered from four-month lows of $72.60, hit during last week, the macro data still points towards a weaker demand from Asian nations as manufacturing has remained in contraction while the US data is a mixed bag. We continue to see short term weakness in prices, Since WTI is trading above its 200-day average of $76, it would remain the day's support, while we see prices retracing back to $74 this week.

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