Crude Oil: Crude Oil Prices Set to Remain Volatile as USD Trades Near 20-Year High
This week, we saw crude oil prices jump nearly 10% from Monday’s low in both international and domestic markets, as the European Union, the world’s largest trading bloc, announced its intention to phase out Russian oil imports, thereby offsetting demand concerns. in the first importer China.
European Commission President Ursula von der Leyen has proposed a gradual oil embargo on Russia over its war in Ukraine, as well as sanctioning Russia’s top bank, in a bid to deepen Moscow’s isolation .
OPEC+ forecasts a surplus of 1.9 million barrels per day in 2022, 600,000 bpd higher than a previous forecast, amid slowing demand growth this year.
The report, prepared ahead of an OPEC+ joint technical committee meeting, also sees OECD oil inventories slightly above the 2015-2019 average in the fourth quarter.
The revision reflects a weaker oil demand growth forecast adopted by the Organization of the Petroleum Exporting Countries (OPEC) in its April monthly oil report.
Prices were also supported by OPEC+ which ratified a limited production increase following the European Union’s proposed ban on Russian imports. OPEC and its allies will nominally increase production by 432,000 barrels per day in June.
However, OPEC only managed an increase of just 10,000 barrels per day in April. OPEC now expects global oil demand in 2022 to rise by 3.67 million bpd in 2022, down 480,000 bpd from its previous forecast.
The group cited the impact of Russia’s invasion of Ukraine, rising inflation as crude prices soared and the resurgence of the Omicron coronavirus variant in China as reasons for the review. .
U.S. crude oil inventories rose unexpectedly last week, while distillate and gasoline inventories fell again as refiners continue to increase fuel exports to a world in need of supplies , the Energy Information Administration said Wednesday.
Crude oil prices were also supported, with natural gas prices jumping more than 9% at one point to a high of $8.169 per million British thermal units (MMBtu), the highest level since September. 2008.
Natural gas jumped on prospects for increased demand for U.S. LNG exports, while warmer-than-usual weather forecasts could boost cooling demand.
However, disappointing data from the US, weakness in the dollar index and concerns over Chinese demand could limit gains. The EU aims to conclude the sanctions package by the end of the week, or May 9 at the latest, according to diplomats.
Crude prices also gained support after a leaked report that the United States will accept offers this fall to buy back 60 million barrels of crude oil for the U.S. Strategic Petroleum Reserve, the first step in replenishment stocks after a record release this spring.
The US Dollar Index broke through 103.50 and trading near 20-year highs, US 10-year bond yields also crossed 3.0% and traded around 3.5-year highs.
We expect crude oil prices to remain volatile. The longer-term outlook for prices also remains bullish as the EU braces for a Russian oil embargo, which could see up to 2 million bpd of Russian production lost by the end of this month.
We expected the WTI Crude Oil trading range next week to be between $100.00 and $114.50; however, the currency (USDINR) will play an important role in determining the price of domestic crude oil.
We expect oil prices to remain volatile next week. WTI Crude Oil has support at $103.80 – $98.40 and resistance is at $114.5 – $117.65. In INR terms, Crude Oil has support at Rs 8,240-7,870; while resistance is at Rs8,650–8,820.
(The author is Vice President Commodities, Mehta Equities Ltd)
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