Crude oil prices in international and domestic markets rose nearly 10% this week from Monday’s lows, as the European Union, the world’s largest trading bloc, laid out a plan to phase out Russian oil imports, offsetting demand concerns in top importer China.
European Commission President Ursula von der Leyen has proposed a phased oil embargo on Russia’s war in Ukraine and sanctions on Russia’s top banks to deepen Moscow’s isolation.
OPEC+ sees an oil surplus of 1.9 million bpd in 2022, up 600,000 bpd from its previous forecast, as demand growth is expected to slow this year.
The report, prepared ahead of a meeting of the OPEC+ Joint Technical Committee, also found that OECD oil inventories in the fourth quarter were slightly above the 2015-2019 average.
The revision reflects a weaker forecast for oil demand growth adopted by the Organization of the Petroleum Exporting Countries (OPEC) in its monthly oil report for April.
OPEC+ approved a limited production increase after the European Union proposed a ban on Russian imports, also supporting prices. OPEC and its allies will increase output by a nominal 432,000 barrels per day in June.
However, OPEC only increased production by 10,000 barrels per day in April. OPEC now expects world oil demand to increase by 3.67 million bpd in 2022, down 480,000 bpd from its previous forecast.
The group cited the impact of Russia’s invasion of Ukraine, rising inflation due to soaring crude oil prices and the resurgence of the Omicron coronavirus variant in China as reasons for the revision.
U.S. crude oil inventories unexpectedly rose last week, while distillate and gasoline inventories fell again as refiners continued to boost fuel exports to a world that needed supplies, the U.S. Energy Information Administration said on Wednesday.
Crude oil prices were also supported as natural gas prices rose more than 9% to an intraday high of $8.169 per million British thermal units (MMBtu), the highest level since September 2008.
Natural gas prices rose on the prospect of increased U.S. LNG export demand, while a warmer-than-usual weather forecast could boost cooling demand.
However, disappointing U.S. data, a weaker U.S. dollar index and concerns about Chinese demand could cap gains. According to diplomats, the EU aims to complete the sanctions package by the end of the week or by May 9 at the latest.
Crude prices were also supported by reports that the United States will bid to buy back 60 million barrels of crude for the U.S. Strategic Petroleum Reserve this fall, the first step in restocking after a record release this spring.
The US dollar index broke through 103.50 and was close to a 20-year high, and the US 10-year Treasury bond yield also broke through 3.0%, close to a 3-1/2-year high.
We expect crude oil prices to continue to fluctuate. The long-term outlook for prices also remains bullish as the EU prepares for a Russian oil embargo, which could cost Russia as much as 2 million bpd of production by the end of the month.
We expect WTI Crude to trade in a range between $100.00 and $114.50 next week; however, the currency (USD Indian Rupee) will play an important role in determining domestic crude prices.
We expect oil prices to remain volatile next week. WTI crude oil support at 103.80-98.40 dollars, resistance at 114.5-117.65 dollars, in Indian rupee terms, crude oil support at 8,240-7,870 rupees; and resistance at 8,650-8,820 rupees.
(The author is VP Commodities, Mehta Equities Ltd)
(Disclaimer: Suggestions, suggestions, views and opinions given by experts are their own and do not represent the views of the Economic Times)