 "Oil and gas Ship shipping trade")
Higher for longer interest rates have dampened risk sentiments
Oil prices have been trending down since the start of the week, meanwhile, on the back of grim demand expectations because of persistently high interest rates. Prices of both the benchmark slid on Wednesday, with Brent crude futures settling 1.18 per cent lower at $81.90 a barrel. US West Texas Intermediate crude (WTI) was down $1.09, or 1.39 per cent, to $77.57. Both benchmarks are down about 5 per cent for the month but still are trading 8 per cent higher for the year.
EIA Weekly inventory
Last week 1.8 million barrels of crude oil inflowed into the commercial US reserves taking the filled capacity to 458.8 million barrels. The weekly gasoline inventories shed 900,000 barrels in the week to May 17, with production averaging 10 million barrels daily. US implied demand for gasoline, diesel, and jetfuel (4-wk avg.) rose for a third week to 14.2mbd, close to the post-pandemic seasonal avg at 14.3mbd and US gasoline demand has further seen improving ahead of the driving season to 9.31 mbpd last week, from 8.87mbpd a week earlier.
Opec+ in focus
Crude markets have been pressured by weakening fundamentals, with Opec+ likely extending production cuts at their June meeting to support prices, OPEC+ will almost certainly extend its production cuts into the second half of the year and perhaps even into next year. The current policy states that mandatory crude oil production cut for members is around 3.66 million barrels per day, continuing until the end of this year, while voluntary cuts amount to 2.2 million barrels per day, continuing until June 2024. The fundamental balance in oil remains precarious and any move to bring back any production may have a disproportionately harsh effect on prices.
Moderating inflation
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The British inflation has moderated in April as the consumer prices rose by 2.3 per cent in annual terms in April, slowing from a 3.2 per cent increase in March. While the monthly increase was at 0.3 per cent in April vs 0.6% in March. US Headline CPI eased to 0.3 per cent M-o-M vs. 0.4% prev. in April, and 3.4 per cent Y-o-Y vs. 3.5 per cent prev. Energy prices rose 1.1 per cent in April.
Asian demand remains in weak spot.
China and India account for 20-22 per cent of global annual crude oil demand, which in the past few months had been showing a fatigue sign, China’s April oil imports had declined by 8.8 per cent on an M-o-M basis to 44.7 million tons. While that of India was down 5.8 per cent to 19.86 million tons or 4.85 mbpd in April 2024 from 21.09 million tons in March. Any improving sign of demand in the coming months from this nation would be supportive for prices to trade higher.
Hawkish US Fed
The minutes from the US Federal Open Market Committee (FOMC) meeting on May 1 revealed some officials would be prepared to raise interest rates further if inflation became more aggressive. Fed officials made this clear this week, as they advised the ultimate decision-makers to refrain from rate cuts for at least another few months. The Fed kept the fed funds rate at a 23-year high range of 5.25 per cent to 5.50 per cent at the meeting, a decision that was unanimously backed by the voting members of the FOMC.
Outlook
We expect prices to trade in a broader range of $75-$80/b unless we see any major changes in terms of macroeconomics or geo-politics as the bullish drivers for oil prices, seem to be all but absent after the death of Iran’s president Ebrahim Raisi failed to prompt a rally, while the supply side fundamentals appear to be solid, especially in the supply department, helping keep a lid on prices.
Oil prices may remain weaker for longer than previously considered likely, especially in the absence of a new geopolitical trigger and the loss of power in existing triggers. The next key catalyst for crude oil is the OPEC+ policy decision on Scheduled on June 1st.
Oil prices may remain weaker for longer than previously considered likely, especially in the absence of a new geopolitical trigger and the loss of power in existing triggers. The next key catalyst for crude oil is the OPEC+ policy decision on Scheduled on June 1st.
WTI Crude oil Jul: Support: $75, Resistance: $80
MCX Crude June: Support: 6,380, Resistance: 6,650
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Disclaimer: Mohammed Imran is a Research Analyst at Sharekhan by BNP Paribas. Views expressed are personal.
