By Jigar Trivedi

Crude oil rose more than 4% in the previous week, to close at $115.07 per bbl, amid persistent concerns of tighter global supplies and rising demand ahead of US Summer driving season. US Gasoline demand in the US remained at record levels ahead of the US peak driving season, traditionally starting on Memorial Day. Meanwhile, the EU continued to negotiate with Hungary over the Russian oil embargo, with European Council President Charles Michel saying he is confident that an agreement can be reached before the council’s next meeting on 30th May. Hungary said it could not back the EU’s embargo until there was a deal on all issues the sanction would bring, as it requires up to 4 years and heavy investments to transition away from Russian crude. 

Meanwhile, US crude oil inventories fell by 1.019 million barrels for the week ended 20th May and crude stocks at Cushing, Oklahoma, delivery hub dropped by 1.061 million barrels. Gasoline stocks shrank by 0.482 million barrels while inventories of distillate fuels, which include diesel and heating oil, went up 1.657 million barrels. Money managers have increased their bullish Brent and WTI oil bets by 5,252 combined net-long positions to 470,663, most bullish in 12 weeks, weekly ICE Futures Europe and CFTC futures and options data showed.

Crude oil outlook for this week

The black gold might rise further amid a tight refined products market ahead of US summer driving season, improving demand from China and rising prospects of an EU ban on Russian oil. Weakness in dollar index also aides the oil, as it makes crude cheaper for other currency holders. Sentiments received a boost as Chinese authorities moved to stimulate the country’s faltering economy and eased some of its strictest virus controls as the number of new local Covid-19 cases fell to the lowest level in almost three months. 

Lockdowns in China was directly hitting more than 1 mbpd of crude oil demand. Despite failing to agree on an embargo on Russian oil on Sunday, EU might continue working on a deal to ban seaborne deliveries of Russian oil in the EU summit on 30th and 31st May. OPEC+ meeting on 2nd June might be a non event, as the group is expected to ratify another modest output hike as expected, despite calls from West to pump more. We expect MCX Crude oil June futures to rise towards Rs 9,250 per bbl for the week in the event of a sixth round of sanctions against Russia, including the energy sector. 

(Jigar Trivedi, Manager — Non-Agro Fundamental Research, Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)