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Crude oil rebounds on favourable inventory data
Oil prices have started on firm foot in Asia with WTI lingering around $79/b, following a volatile session on Wednesday, when oil prices made sharp recovery, from fresh three-month lows of $76.70 to finish the day up at $78.63 driven by the favourable weekly inventory data from US. Crude oil prices have moderated in last 4 weeks due to easing of geo-political risks but are still up 10% for the year so far.
EIA Weekly inventory
The commercial stocks decreased by 2.5 million barrels from the previous week. At 457.0 million barrels and are about 4% below the five-year average for this time of year. US Gasoline demand rose to 8.87mbpd last week but still lag from 9.05 mbpd of last year and the lowest 4-week gasoline demand in the last 5 years (excluding covid), around 8.67 mbpd. The refiners operated at 90.4% of operable capacity, indicating improved efficiency ahead of US summer driving demand.
IEA trims demand outlook
The International Energy Agency (IEA), Paris based energy watchdog has revised down their global crude oil demand by 140,000 barrels per day (bpd) to 1.1 million bpd, largely citing weak demand in developed OECD nations, as poor industrial activity and another mild winter have sapped gasoil consumption this year, particularly in Europe, where a declining share of diesel cars have already saw a declining consumption. IEA lowered its growth outlook for this. But that’s in contrast from OPEC’ expectation that world oil demand will rise by 2.25 million barrels per day (bpd) in 2024.
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The increase in global supplies would be contributed by jump in production from non-OPEC+ output by 1.4 mb/d while OPEC+ production is expected to decline by 840 kb/d, assuming that voluntary cuts are maintained, this will lead to World oil supply to increase by 580 kb/d this year to a record 102.7 mb/d.
OPEC+
OPEC’s April’s monthly report showed OPEC+ crude production fell 240 kbpd m/m to 34.16 mbpd in April from 34.41 mbpd of March, however the group have over produced the quota limit of 33.97 mbpd by 190kbpd. Russia led the cuts in April (-170 kbpd), which reduced output in line with its newly revised production targets, next largest production decline was from Nigeria. OPEC all members supply in April fell by 48k b/d month-on-month to 26.58m b/d, while OPEC+ supply fell by 246k b/d MoM 41.02m b/d. OPEC left its demand growth estimates unchanged at 2.25m b/d and 1.85m b/d for 2024 and 2025, respectively.
Outlook
The rebound in oil prices is partially driven by softening of dollar index, which plunged to one month's low of 104.36 on Wednesday on rising expectation of more than one rate cuts from US Fed this year, as US CPI moderated in April, along with decline in consumer spending gauged by retail sales have dropped in April.
The demand has clearly fallen down from Asia and US in recent months and global crude balance flipped into surplus of 0.61 mbpd in April (EIA), but still the WTI trades in backwardation 0.47 cents/b, indicating some risk to future supplies.
Overall, we expect WTI prices to trade range bound in short term in the between of $75-$80 and any significant upside move will only be sustained by strong demand side fundamentals from US and China.
WTI Crude oil: Support: $75, Resistance : $81
MCX Crude June: Support : Rs 6,400 , Resistance : Rs 6,600
Disclaimer: Mohammed Imran - Research Analyst, Sharekhan by BNP Paribas, views expressed are personal.
