 "WTI crude oil to stay rangebound within $78-$83; check strategy for June 20")
Renewed geo-political risks drives crude oil higher
Crude oil prices started little lower in Asian trading hours on Thursday weighed down by API forecast of jump in US crude oil reserves by 2.26 million barrels last week. WTI August futures were tad changed at $80.47 in a thin holiday trading session. Oil prices are up 3.3 per cent for the week, so far, and look set for weekly gains.
Crude oil prices have made sharp recovery since hitting four-month low of $72.45 during the first week of June after Opec+ decided to extend the production cut deal but phasing out the voluntary cuts between October 2024 to September 2025, which was perceived bearish by the market forces.
Both the benchmarks, which have recovered significantly over the past two weeks, reaching seven-week highs earlier on Tuesday driven by renewed geo-political risks after Israeli Foreign Minister Israel Katz warned of a potential "all-out war" with Lebanon's Hezbollah, despite US' efforts to prevent a broader conflict between Israel and the Iran-backed group. This surge followed a Ukrainian drone strike that caused a fire at an oil terminal in a major Russian port. Crude prices have recovered in recent days, but the supply side looks bearish due to Opec+'s spare capacity and rising production from the US, Guyana, and Brazil
China stays in weak spot
China imports dropped 8.7 per cent year-on-year to 11.11 million b/d (46.97 million mt) in May, while the country imported 229.03 million tonnes or 11.04 mb/d of crude oil in the first five months, down 0.4 per cent Y-o-Y. China property market, which accounts for 25 per cent of GDP, remains the biggest drag on 18 trillion economy since 2021.
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China's Property investment fell 10.1 per cent Y-o-Y in January-May, deepening from a decline of 9.8 per cent in January-April. New home prices slipped 0.7 per cent in May from April, marking the 11th straight month-on-month decline and steepest drop since October 2014.
US Hurricane season and summer driving demand
The June to September typically marks for higher consumer gasoline demand in US due to summer driving season, while gasoline prices are down 6 per cent from April, the demand still lagging under 9 mbpd indicating a weaker trend.
While the US National Hurricane Centre issued a tropical storm warning for the Texas coast, the gulf coast accounts for 12-15 per cent of US crude oil production, disruption by hurricane could affect the production lines of many refiners.
Energy guidance
The latest guidance provided by Opec+, as well as their unchanged 2.25 million barrels per day demand growth outlook, signals a stagnation in oil supply growth for 2024 and an apparent downside risk to production in 2025. Opec production increased by 29k b/d M-o-M to 26.63m b/d in May, while total Opec+ output fell by 123k b/d M-o-M to 40.92m b/d.
The EIA raised its 2024 world oil demand growth forecast to 1.10 million barrels per day from a previous and IEA also expect demand to get somewhat better in H2-2024.
Outlook:
US economic data is showing mixed trend, but we expect one rate cut for the year. The political crisis in France, sparked by the unexpected results of the weekend's European elections, is heavily weighing on European markets. The uncertainty over the political climate in Eurozone could drag crude oil prices lower. China, on the other hand, is still struggling with property market woes and it may take a few more month to see economic traction, The short-term outlook for prices looks range bound between $78-$83, whereas WTI could test resistance of $85 over the medium term.
WTI Crude oil Aug: Support: $78, Resistance: $82
MCX Crude Jul: Support: 6,630, Resistance: 6,850
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Disclaimer: Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.
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Disclaimer: Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.