By Jigar Trivedi
WTI crude futures held their recent advance to around $114 per barrel and were on track to close the week higher, buoyed by persistent concerns about tight global supply. EIA data released on Wednesday showed a larger-than-expected drawdown in US crude inventories last week due to soaring exports, highlighting a tight global market. Meanwhile, the EU continues to haggle with Hungary over banning oil imports from Russia with European Council Charles Michel saying he is confident that an agreement can be reached before the council’s next meeting on May 30. A top Hungarian aide said the country needs 3 to 4 years to shift away from Russian crude and make huge investments to adjust its economy and that it could not back the EU’s proposed oil embargo until there was a deal on all issues. Elsewhere, OPEC+ is widely expected to stick to last year’s oil production deal at its June 2 meeting and raise July output targets by 432,000 barrels per day.
Fuel markets have tightened globally following Russia’s invasion of Ukraine in late February, which has upended trade flows and fanned inflation. The Biden administration is reaching out to oil companies to inquire about restarting shuttered refineries. Oil’s fifth weekly advance would be the best run since February, with futures more than 50% higher this year. Further gains have been capped by a virus resurgence in China, which continues to weigh on the outlook for demand as the world’s biggest crude importer sticks with its Covid Zero strategy. The China demand story is shorter-term in nature, whereas the supply issues are a longer-term problem.
OPEC+ meets virtually on Thursday to discuss the oil market. US Memorial Day holiday is on Monday, affecting energy trading hours. The Biden administration is reaching out to the oil industry to inquire about restarting shuttered refineries, as the White House scrambles to address record-high gasoline prices that are setting off political alarm bells ahead of the midterm elections.
Saudi Arabia’s oil exports reached $30 billion in March, the highest in at least six years, driven by a rally in oil prices and rising production. The value of crude exports, now almost $1 billion a day, increased by 123% year on year, the kingdom’s statistics office said. Saudi Arabia’s crude production rose to 10.3 million barrels a day in March.
Outlook is positive amid optimism surrounding the re-opening of the Chinese economy. The UK has announced a stimulus, China has announced the same for industries. The manufacturing PMI for China has slowed for two back to back months but there is optimism for reopening of the economy hence demand may emerge. MCX Crude oil June may rise to Rs 9,100 per bbl.
(Jigar Trivedi, Manager — Non-Agro Fundamental Research, Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)