Crude Oil Outlook July 25: WTI prices may test support at $75; MCX Rs 6,250

Oil prices could fall back to early June level of $72.50 as demand side fundamental are looking weak due to abysmal economic performance of China, says technical analyst Mohammed Imran.

Crude oil prices settled higher by 0.8 per cent at $77.59 on Wednesday supported by the bullish inventory data showing decline in stockpiles across the products last week.

However, prices are still down over 6 per cent for the week amid sharp decline in macro-economic trend over last two week. The energy markets were able to shake off Wednesday's sharp sell-off in the US stocks and the weak US manufacturing PMI and new home sales reports.

OPEC+ has said that Russia has over produced 0.48 mbpd of its quota limits during the first six months of the year and it now promises that it would offset 40,000 bpd of oil overproduction in Oct-Nov 2024, while 440,000 bpd of excess output will be offset in March-Sept 2025.

 

Three of the OPEC+ members will fully compensate for their overproduction by September 2025, with their respective compensation cuts varying from month to month. While Canadian wildfire has somewhat supportive for oil prices as it threatens nearly 500,000 bpd of crude oil sands output and pipeline shipments to the US.

EIA weekly inventory data

Wednesday's EIA report showed that (1) US crude oil inventories as of July 19 were -5.1 per cent below the seasonal 5-year average, (2) gasoline inventories were -1.8 per cent below the seasonal 5-year average, and (3) distillate inventories were -8.6 per cent below the 5-year seasonal average. The US crude oil production in the week ending July 19 was unchanged w/w and matched a record high of 13.3 million bpd. While gasoline demand once again surged above 9.4 mbpd signalling strong summer demand.

China's economic slowdown weighing on commodities

China, the world's biggest oil importer, saw a decline in crude arrivals in the first half of the year while boosting stockpile volumes. weak refining margins and poor fuel demand led to an 11 per cent drop in China's total fuel oil imports in the first half of 2024.

Imports totalled 11.95 million metric tons, or approximately 75.88 million barrels. Monthly imports significantly declined towards the end of the second quarter, with June imports down 31 per cent from May and 45 per cent from a year earlier.

US Economic data preview

The advance estimate of GDP growth for the second quarter in US is projected to have expanded by an annualized rate of 2.0 per cent in Q2 versus 1.4 per cent in the prior three months.

The personal consumption expenditures (PCE) price index is expected to have eased from 2.6 per cent in May y/y to 2.4 per cent to June, which would make it the lowest since February 2021. The US Federal Reserve is expected to cut rates just twice this year, in September and December,

Outlook

Oil prices could fall back to early June level of $72.50 as demand side fundamental are looking weak due to abysmal economic performance of China. The real estate sector which accounts for 25-30 per cent of China's GDP remain in dark, which may led to sub-par growth of under 5 per cent during the current year. We expect further moderation in prices and the next crucial support remains around $75.

WTI Crude oil Sep :Support: $75, Resistance : $78

MCX Crude Aug:  Support : Rs 6,250 , Resistance : Rs 6,600

Disclaimer: Mohammed Imran - Research Analyst, Sharekhan by BNP Paribas, views expressed are personal.