Crude oil forecast: MCX crude oil June futures may fall to Rs 9000/bbl on higher US dollar; US Fed meet eyed

Crude stocks at the Cushing, Oklahoma, fell by 1.593 million barrels, while gasoline stocks fell by 0.812 million barrels.

crude oil, oil prices
A higher dollar hurts all commodities denominated in dollars, as it makes the commodity dearer for other currency holders.

By Jigar Trivedi

WTI crude futures eased after touching a three-month high of $123.18 per bbl, recording the seventh weekly advance, on prospects of demand recovery from China and the US summer driving season. Robust demand for refined products underpins oil demand. US retail gasoline prices have repeatedly broken records and recently hit $5 a gallon as Americas ramped up travel despite high prices. Supply remains tight, with OPEC and its allies unable to deliver according to their quotas amid a lack of spare capacity among producers, sanctions on Russia, and output in Libya roughly halved by political unrest. 

Sentiments were further buoyed after EIA forecasts showed Russia’s production of total liquid fuels declining from 11.3 million b/d in the first quarter of 2022 to 9.3 million b/d in 4Q23. US crude oil inventories rose by 2.025 million barrels in the week ended 3rd June mainly on account of a huge SPR release. Meanwhile, crude stocks at the Cushing, Oklahoma, fell by 1.593 million barrels, while gasoline stocks fell by 0.812 million barrels. CFTC data showed that money managers have increased their bullish Nymex WTI crude oil bets by 1,676 net-long positions to 284,879, the most bullish in 16 weeks.

Crude oil futures outlook

Though the oil market remains tight, we could see some pressure for the week amid a slew of central bank meetings, including FOMC meetings. The latest US inflation print for May showed that prices have surged to a new 40-year high of 8.6%, adding more pressure on the Fed to act more aggressively, pushing the economy into a recession. The Fed is expected to hike rates by 50 bps points until September and the possibility of 75 bps is rising, aiding the dollar index. 

A higher dollar hurts all commodities denominated in dollars, as it makes the commodity dearer for other currency holders. Meanwhile, renewed restrictions in China, just weeks after major easing in key cities such as Shanghai might also weigh down on sentiments. We expect MCX Crude oil June futures to decline towards Rs 9,000 per bbl for the week. 

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

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