Crude oil firms up on bullish inventory data
After falling 1.3 per cent to settle at $74.50 on Wednesday, oil prices started firmly on Thursday morning in Asia with WTI trading at $74.75. The rise came despite the weekly EIA inventory data showed draws across the product line.
Weakness in the crude crack spread is bearish for oil prices as the crack spread today dropped to a new three-and-a-half year low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
Bullish weekly inventory data
US commercial crude oil inventories fell by 846,000 barrels over the week, US commercial crude oil stocks have fallen eight out of the last nine weeks, which leaves inventories at their lowest level since January.
In addition, crude oil stocks in Cushing fell by 668,000 barrels week-on-week (W-o-W) to 27.54 million barrels – the lowest level since November last year.
Elevated geo-political risk
The geo-political risk remains high across the Middle East with Libyan output dropping this week by close to 500,000 barrels per day, excluding the shutting down of the Sharara oilfield earlier this month. A prolonged shutdown from Libya will give Opec+ a bit more comfort in increasing supply in Q4FY24 as currently planned. However, a short-lived disruption makes the Opec+ decision on supply increases a lot more difficult.
The “real physical barrels” being removed from the market due to the halting of Libyan oil exports could potentially be offset by the potential of Opec starting to slowly unwind its production cuts.
Russian exports seen rising
Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by over 390,000 bpd to 3.35 million bpd in the week to August 25, the highest in nearly two months. Meanwhile, increased Russian crude production is negative for oil prices after Russia’s Energy Ministry reported last Friday that Russia’s July crude production was 9.045 million bpd, about 67,000 bpd above the output target it agreed to with Opec+
Data in focus
Markets would focus on the second release of the US GDP figures for Q2FY24, apart from the profits update, which comes with that second release. Advance US goods trade data for July is also published. But trade data is not a big market mover. Initial jobless claims may also get more than the usual glance as the US labour market seems to have become the new benchmark by which the market will estimate the Fed’s easing scope and pace. We will also get a lot of German inflation releases, including the national harmonized index. The Eurozone publishes some August business and consumer confidence numbers.
Crude Oil Outlook
In the absence of a strong demand for commodities from China, the rally in industrial commodities fizzled out. Moreover, despite the elevated geo-political risks in Middle East and Ukraine-Russia, Brent is not able to sustain above $80 and WTI falling short to breach $80-mark shows the underlying market is weak.
The short to medium term outlook remain moderative in oil prices. WTI could test the support of $72-$70 in coming sessions.
WTI Crude Oil Oct: Support: $72, Resistance: $76.5
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Disclaimer: Mohammed Imran – Research Analyst, Sharekhan by BNP Paribas. Views expressed are personal.
First Published: Aug 29 2024 | 9:54 AM IST
