By Royce Varghese
WTI Crude oil futures ended the previous week 3.5% higher and closed at $92.09 per bbl, amid bullish IEA outlook, raising its oil demand estimate for 2022. The Paris based agency said higher natural gas and electricity prices will lead to more gas-to-oil switching and forecasted a near 20% drop in Russia’s oil output by the start of next year when the EU ban takes effect, which boosted market sentiments. Meanwhile, gains were capped as flows on the Russia-to-Europe Druzhba pipeline resumed, easing some supply concerns. Unexpected rise in EIA inventories also weighed on the sentiments. US crude oil inventories rose by 5.458 million barrels to 432 million barrels in the week ended 5th August, the highest since December 2021.
Drillers have restored US crude production to the highest level since April 2020, when the pandemic began crippling the oil industry. US weekly output reached 12.2 million barrels a day in the week ended 5th August, according to EIA data. MCX Crude oil August futures closed at Rs.7,359 per bbl, up by 3.8%. Money managers have decreased their bullish NYMEX WTI crude oil bets by 25,653 net-long positions to 166,782, weekly CFTC data showed. The net-long position was the least bullish in more than two years.
MCX crude oil outlook for this week
Oil might be very volatile for the week and is expected to be under pressure on concerns of demand sapping economic slowdown coupled with prospects of increased supplies from the Iran nuclear deal. In the previous week, the EU submitted a final text to revive the 2015 deal late, awaiting approval from Washington and Tehran. In the latest developments, Iran has sent the European Union its official response to the bloc’s proposal for reviving the 2015 nuclear accord after signalling it may be nearer a deal with the US that could restore Iranian oil exports to global markets. Stronger dollar index and expectations of a hawkish Fed meeting minutes for August might further weigh down on prices. Hawkish comments in minutes might improve the conviction that Fed might be aggressive in coming meetings, despite a slowdown in the economy. Meanwhile, China’s factory and retail activity slowed unexpectedly in July, prompting the central bank to cut key lending rates to shore up demand in the world’s major consumer of commodities.
On Sunday, Saudi Aramco head Amin Nasser said that the state-owned firm stands ready to raise crude output to its maximum capacity of 12 million barrels a day if the Saudi Arabian government orders it to do so, further weighing on sentiments. Market awaits EIA inventory data due on Wednesday to see any further build-up in stocks as we move towards the refinery maintenance season, a period of lower crude oil demand. We expect MCX Crude oil September futures to decline towards Rs.6,750 per bbl for the week.
(Royce Varghese, Fundamental Analyst, Currency & Energy, Anand Rathi Shares and Stock Brokers. Views expressed are the author’s own.)