Oil outlook, June 27: Oil a 'buy on dips' bet; MCX Crude support at Rs 6700

WTI/MCX crude oil outlook today: The overall weekly inventory report is disappointing as it is indicating slowdown in the US consumer/industrial demand

Crude oil prices settled lower on Wednesday amid a disappointing weekly crude inventory data from the US, along with a softer US economic data, which pushed the Dollar index to settle above 106. Oil prices were down half a per cent in Asian trade on Wednesday with WTI around $80.50 levels. 

Crude oil and gasoline prices, however, recovered from early losses and closed higher on Wednesday with gasoline climbing to a 5-week high. Strength in the crude crack spread sparked short-covering in crude after the crack spread climbed to a 4-week high, encouraging refiners to boost their crude purchases to refine into gasoline and distillates.

 

EIA weekly inventory report

The overall weekly inventory report is disappointing as it is indicating slowdown in the US consumer/industrial demand. EIA crude inventories unexpectedly rose 3.59 million bbl versus expectations of a 2.8-million bbl draw.  Also, EIA gasoline supplies unexpectedly rose 2.65 million bbl versus expectations of a 1.5-million bbl draw. In addition, EIA distillate stockpiles fell 377,000 bbl, a smaller draw than expectations of 1.05 million bbl. 

On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell by 226,000 bbl. Wednesday's EIA report showed that the US crude oil inventories, as of June 21, were 1.5 per cent below the seasonal 5-year average; gasoline inventories were 0.2 per cent below the seasonal 5-year average; and distillate inventories were 8.8 per cent below the 5-year seasonal average. US crude oil production in the week ending June 21 was unchanged week-on-week (W-oW) at 13.2 million bpd, just below the recent record high of 13.3 million bpd.

Data in focus

Going ahead, the markets' focus will shift to the upcoming presidential debate between Joe Biden and Donald Trump; and snap elections in Iran. 

The renewed cross-border strains between Israel and Lebanon's Hezbollah have been escalating in recent weeks, stoking fears of an all-out Israel-Hezbollah war that could draw in other regional powers, including major oil producer Iran. All these factors could limit the downside in crude oil.

Crude oil outlook

Most of the Fed speakers remained hawkish as they see inflation still posing a risk, while the dot-plot policy is indicating one rate cut for 2024, which, once again, pushed the Dollar index to eight weeks high of 106. The backwardation curve have strengthened in the past two weeks with the spread between current month and next month staying around $0.7, signalling tightening supply.

Bearish weekly inventory data, however, could see some selloff in the counter. That said, oil remains a buy on correction in the short to medium term with global market expected to fall in deficit of above 1 mbpd by end Q3. The immediate support for crude remains at $78.71 (50-DMA) with the medium-term support remains at $77.13 (200-DMA) and the short term support at $77.13 (200-DMA). 

We hold bullish stance on oil prices and any correction should be considered as a buying opportunity.

WTI Crude oil Aug: Support: $78, Resistance: $83.5

MCX Crude Jul: Support: 6700, Resistance: 6950.

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