By Royce Vargheese Joseph
WTI Crude oil futures ended the previous week 0.09% lower and closed at $86.79 per bbl on demand concerns and rising stockpiles. In China, Chengdu extended a lockdown for most of its 21 million residents, highlighting the country’s strict adherence to its zero-Covid strategy that derails economic recovery and clouds the demand outlook. US crude oil inventories jumped 8.844 million barrels in the week ended 2nd September, the most since April, which can be mainly attributed to record high SPR drawdowns.
WTI oil touched a seven-month low of $81.7 per bbl before paring the losses on supply concerns. Price caps on Russian natural gas mulled by EU ministers prompted President Putin to threaten the immediate halt of all energy exports to Europe, including oil and coal. In addition, OPEC+ unexpectedly agreed to cut output by 100,000 barrels a day from October in the September meeting, with Saudi Arabia signaling further action. Money managers have decreased their bullish Brent and WTI oil bets by 20,211 combined net-long positions to 329,085, while the net-long position was the least bullish in three weeks, weekly CFTC data showed.
Outlook for the week: US CPI data in focus
Volatility is expected for the week as the market awaits key inflation data from the US for more cues on Fed’s rate hike path ahead of the FOMC meeting due next week. Earlier last week, ECB raised the benchmark rates by 75 basis points and indicated a similar move in the November meeting. The Fed is also expected to go for a 75 bps rate hike in September and market worries of a slowdown in demand amid aggressive central bank tightening to curb inflation, which might weigh down on oil prices. Demand from major consumer China remains subdued amid strict zero covid policy and extension of lockdowns along with fresh lockdowns in cities around Beijing.
The recent bounce back in oil prices can be mainly attributed to a sharp fall in the dollar index, which is not expected to sustain unless US CPI surprises on the downside. Demand concerns and rising supplies from OPEC+ might weigh down on oil prices. West is actively formulating a price cap mechanism by year-end when EU sanctions take place, without affecting Russian oil output. Meanwhile, US Secretary of State Antony Blinken said it was unlikely that the US and Iran would reach a new nuclear deal anytime soon, providing some underlying support for prices. We expect MCX Crude oil September futures to trade in the range of Rs 6,500-7,250 per bbl for the week, with a downward bias.
(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.)