By Royce Vargheese Joseph
WTI crude oil surged more than 16% towards $93 per bbl, the most since early March as OPEC+ agreed to cut production by 2 million barrels per day from November, in a move that threatens to squeeze supply further ahead of the winter season. That would be the biggest output cut since the start of the pandemic, though Saudi Arabia?s oil minister said the actual cut will likely be around 1 to 1.1 million barrels as some members are already pumping below targets.
Meanwhile, US weekly crude oil production was mostly hovering near 12.1 mbpd in September, however, it fell to 12 mbpd in the last week of September. US shale production is not rising significantly despite the government’s push to increase the output. Inflation and supply-chain delays continue to play a major role in hampering production and expansion.
In April, the Biden Administration announced 180 million barrels of crude oil sales for six months, from the Strategic reserves to bring the oil prices. In the past few months, DOE has been releasing SPR at an average rate of 0.85 mbpd, which helped the tight oil market. The reserves currently stand at 434 million, the lowest since 1984 and the release is set to end in late October, another bullish factor for prices.
Money managers have increased their bullish Nymex WTI crude oil bets by 19,699 net long positions to 189,361, according to CFTC data.
Outlook for the week: US CPI in focus
Oil prices might be under pressure for the week, amid intensifying concern over the impact of tightening monetary policy after strong labour market data reinforced expectations for more aggressive interest rate hikes from the Federal Reserve. US CPI and FOMC meeting minutes will be the major focus for the week, which might decide Fed’s future rate hike path. Any uptick in US inflation will lead to market mayhem. However, prospects of a tight market and rising risk premium might put a floor under prices. OPEC+ effective output cut of almost 1 mbpd coupled with SPR release accounts for almost 2% of global supply vanishing from November. We expect MCX Crude oil October futures to trade in the range of Rs.7,000-7,800 per bbl for the week.
(Royce Vargheese Joseph is a Research Analyst, Commodity at Anand Rathi. The views expressed are the author’s own. Please consult your financial advisor before investing.)