Crude Oil: Here's your trading strategy for January 9; target price & more

On Wednesday, Brent crude was down around 1.2 per cent to $76.16/bbl, while US West Texas Intermediate crude fell around, or 1.05 per cent, to $73.47/bbl

OPEC+ production cuts extension switch market into tightness

 

Oil has had a strong start to 2025, despite widespread concerns that prices would struggle this year given expectations for a global glut. Oil prices have rallied to their highest, level since mid-October on Wednesday amid falling US stockpiles, lower supplies from Russia, and concerns that President-elect Donald Trump may roil flows.  On Wednesday, oil prices tumbled by more than 1 per cent as a stronger US dollar and large builds in US fuel inventories last week pressured prices, reversing earlier gains from the tightening supplies from Russia and other OPEC members. Brent crude was down around 1.2 per cent to $76.16/bbl, while US West Texas Intermediate crude fell around, or 1.05 per cent, to $73.47/bbl.

 

 

Economic data 

China’s retail inflation stood benign while Factory deflation extended into a 27th month at 2.3 per cent, indicating that efforts from Beijing have yet to show any significant improvement on the economy. Wednesday's global economic news was primarily weaker-than-expected and bearish for energy demand and crude prices.  The US Dec ADP employment change rose +122,000, weaker than expectations of +140,000.  Also, Eurozone Dec economic confidence fell -1.9 to a 15-month low of 93.7, weaker than expectations of 95.6.  In addition, German Nov factory orders fell -5.4 per cent m/m, weaker than expectations of -0.2 per cent m/m.

 

Monthly oil updates 

OPEC’s second-largest producer, exported about 3.25m b/d of crude oil in December, from 3.29mbpd of November, while production dipped by 40,000 barrels a day in December as power outages disrupted complying with OPEC deal, while Saudi Arabia raised its crude prices for Asian customers for delivery in February by 60 cents per bbl., above expectations of 10 cents per bbl., as market may have become tighter since additional sanctions of Russia and Iran from US/UK have tightened the market condition. Russia pumped 8.971 million barrels a day of crude in December which is 7,000 barrels a day below Russia’s pledged quota for the OPEC+ deal. Russia has pledged to cut its crude production by a total of 971,000 barrels a day from the baseline of 9.949 million barrels a day. 

 

Renewed sanction fear 

Iran had been able to improve its exports by 10 per cent to 2 mbpd, under Biden’s 4-year regime and China continued to be its largest importer, receiving 533 million barrels of oil, up 24 per cent from the previous year in 2024, accounting for 91 per cent of Iran’s total exports. However, the latest news of the Shandong Port Group’s announcement that it will ban US-sanctioned tankers from its ports — which feed China’s “teapot” refineries that largely take sanctioned Iranian crude — will make it harder for Chinese refiners to buy Iranian crude. Roughly 1.5 million tons (11 million bbl) of Iranian crude are set to arrive at all Chinese ports in the first 14 days of January, averaging around 785,000 barrels per day. That’s a sharp decline from the roughly 2.8 million tons (20.52 million bbl) that landed in the same period in December.

 

EIA weekly inventory data 

EIA crude inventories fell -959,000 bbl, a slightly smaller draw than expectations of -2.0 million bbl.  Also, EIA gasoline supplies rose +6.3 million bbl to a 10-month high, a larger build than expectations of +500,000 bbl.  In addition, EIA distillate stockpiles rose +6.1 million bbl to an 11-month high, a larger build than expectations of +500,000 bbl.  On the bullish side, crude supplies at Cushing, the delivery point of WTI futures, fell -2.5 million bbl to a 10-year low.

 

Outlook 

Oil prices may have rallied 12 per cent from the October lows but the move is driven on speculation of higher stimulus from China, a much strict sanction on Iran and Russia, OPEC+ delayed tactics and trade war between US and rest of the world would result in tighter market conditions during Q-2025. The decision of OPEC to extend the cuts till Q1-2025 may have tightened the market but demand is still showing a weaker trend. We expect prices could remain supportive in the short term to test the resistance of $76-$78, but it would be difficult to avoid the market from falling into glut unless we see a V shape recovery in China and a stronger demand from India absorb the additional supplies from OPEC and Non-OPEC countries. 

 

WTI Crude oil February: Support: $69, Resistance: $76-78

  MCX Crude January: Support: 6,000, Resistance: 6500.

 

(Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own)