By Jigar Trivedi
WTI Crude oil futures fell for the third week in a row and shed almost 3% in the previous week, on concerns over weak US gasoline demand and a global slowdown stemming from aggressive central bank rate hikes. The latest EIA data pointed to weaker US gasoline demand despite the peak summer driving season, with product supply of gasoline, a proxy for demand, falling about 7.6% from a year ago to around 8.5 million barrels per day. Average retail pump prices have been falling for more than a month now, amid rising stockpiles and stalling consumption.
Covid re-emergence in China coupled with rising output from Libya further weighed on the sentiments. Elsewhere, Biden’s recent visit to Saudi Arabia, in a move to increase oil output and bring down prices, couldn’t fetch any immediate results as Saudi said that policy decisions would be based on market dynamics and according to the OPEC+ meeting in August. Money managers have increased their bullish Nymex WTI crude oil bets by 12,344 net-long positions to 227,633, weekly CFTC data on futures and options show.
Crude oil outlook for the week: FOMC meeting in focus
Oil might be under further pressure for the week, ahead of the FOMC meeting where the US Fed might deliver another 75 bps rate hike. The US economy is already heading into a slowdown and aggressive rate hikes going forward might prompt a recession, weighing on fuel consumption. On the supply side, Libya’s National Oil Corporation aims to bring back production to 1.2 million barrels per day in two weeks, NOC said in a statement early on Saturday. While most of Russian oil is sailing towards India and China, Saudi and Iraq are diverting more and more of their crude oil toward Europe, helping the continent’s oil refineries to overcome a pivot away from Russia.
More than 1 million barrels a day of crude has made its way to Europe from the Middle East in the first three weeks of July via the Sumed pipeline, easing supply concerns. The IMF World Economic Outlook to be released on Tuesday might provide some insights on where the global economy is headed. We expect MCX Crude oil August futures to decline towards Rs.7,150 per bbl for the week.
(Jigar Trivedi, Manager — Non-Agro Fundamental Research, Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)