Strong US summer demand and Hurricane threats drive WTI higher
Crude oil prices at $83.50, hover near two months high driven by the renewed geo-political risk in the middle east and red sea region along with the threat of Hurricane Beryl. Oil prices gained 2 per cent on Monday, followed by 6 per cent in June and are up 16 per cent YTD.
Macro data
Also, the Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6. On the negative side, the Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1 while construction spending has declined by 0.1 per cent.
Shift in supply fundamentals
The drilling activities in US have slowed further with the latest data from Baker Hughes showing the oil rig count falling by 6 over the week to 479 active rigs – the lowest since December 2021 and the weekly oil floating storage data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -24 per cent w/w to 73.29 million bbl as of June 28.
OPEC+
OPEC+, on June 2, extended the 2 million bpd of voluntary crude production cuts into Q3 but said they would gradually phase out the cuts over the following 12 months, beginning in October. OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025.
Also, the UAE was given a 300,000-bpd boost to its production target for 2025. A decrease in OPEC crude output is positive for oil prices. OPEC June crude production fell -80,000 bpd to 26.98 million bpd.
But Russia is expected to throw a surprise for June data as Higher than-expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8 per cent above its agreed target of 9.049 million bpd.
Outlook
The WTI backwardation curve has steepened with a spread of above $1 between current month and front month contract signalling tight market conditions. The immediate support for WTI is around $81.69 and expect it to test the resistance of $85. We expect crude oil to make fresh highs for the year in Q3 led by strong Asian demand.
WTI Crude oil Aug: Support: $81.65, Resistance : $85
MCX Crude Jul: Support : 6,750 , Resistance : 7.100
(Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.)
First Published: Jul 02 2024 | 1:50 PM IST