 "WTI Oil strategy, June 25: Outlook bullish on tight supply; Support at $77")
Renewed geopolitical risks drive oil prices higher
Crude oil has started on a strong note this week, rising 1.1 per cent on Monday, with WTI Crude Oil Futures settling above $81. This followed 3 per cent gains in the previous week, driven by the renewed geopolitical risks as Ukraine amplified its drone attacks on Russian refineries and Yemen's Houthi militants ramped up hostilities recently. The Dollar index fell 0.3 per cent, which supported WTI to settle at $81.63/barrel.
EIA weekly inventory trend
Crude has carry-over support from last Friday, when Baker Hughes reported that active US oil rigs in the week ending June 21 fell to a 2-1/3 year low, a sign of reduced US crude output in the near-term. In addition, signs of strength in US fuel demand supported prices after last Thursday's weekly EIA showed US gasoline demand rose to a 7-month high.
Gasoline posted its first draw of the summer driving season last week. US commercial crude oil inventories declined by 2.55 million barrels over last week. The draw was driven by an increase in exports, which were up 1.23mbpd week-on-week, while imports fell by 1.25mbpd W-o-W.
Refined products also saw inventory declines with gasoline and distillate stocks falling by 2.28 million barrels and 1.73 million barrels, respectively. Part of this draw would have been due to lower refinery run rates, which fell 1.5pp over the week. However, stronger demand also played a key role. Implied demand for total refined products increased by 1.86m b/d W-o-W, with increases in gasoline, distillate, jet, and fuel oil demand.
Surging supplies could cap prices
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The weekly data compiled by Vortexa showed an increase in crude oil in floating storage held worldwide rose 12 per cent W-o-W to 92.90 million bbl as of June 21, as tankers have been stationary for at least a week. We already saw that 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. Russia's fuel exports have also increased as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week ended June 16 rose by 5 per cent to a 2-month high of 3.7 million bpd. Opec May crude production rose +60,000 bpd to 26.96 million bpd, a 5-month high.
Data in focus
Traders are looking forward to key US PCE inflation data and comments from several Fed officials to gauge the monetary policy outlook. The upcoming presidential debate between Joe Biden and Donald Trump is also drawing attention, and in Iran, snap elections will be held on Friday. Geopolitical risks from the Middle East also have the potential to affect prices in the weeks ahead.
Outlook
The WTI calendar spread backwardation curve has strengthened to over $1 from 0.41 cents a fortnight ago, signalling tightening supply amid signs of rising US gasoline demand and healthy air travel volumes.
Crude remains on track for a monthly gain. The immediate support for WTI remains at $ 78.78 (50-DMA) and short-term support stays at $77.13 (200-DMA). We hold bullish stance on oil prices and any correction should be considered as buying opportunity.
WTI Crude oil Aug: Support: $77, Resistance: $83.5
MCX Crude Jul: Support: 6,700, Resistance: 6,950
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Disclaimer: Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.