Oil at 1-week high as OPEC maintains 2024 demand forecast ahead of US Fed policy; Brent over $82/bbl
- Brent closed at its lowest level since February, came amid concerns about oversupply and low demand through the rest of 2024 after the OPEC policy decision
Crude oil prices edged higher on Tuesday, June 11, after the Organisation of Petroleum Exporting Countries and its allies (OPEC+) stuck to its forecast for a relatively strong growth in global oil demand in 2024. Investors also waited for the outcome of the US Federal Reserve's policy decision, which was due on Wednesday, June 12, as it may impact the global oil demand outlook.
Brent crude futures rose 49 cents, or 0.6 per cent, to $82.11 a barrel, continuing a sharp recovery since closing at a four-month low of $77.52 last week. That closing level was the lowest since February amid concerns of oversupply and low demand through the rest of 2024.
US West Texas Intermediate (WTI) crude futures gained 41 cents, or 0.6 per cent, to $78.15. Coming to domestic prices, crude oil futures last traded 0.76 per cent higher at ₹6,535 per barrel on the multi-commodity exchange (MCX).
What's working for crude oil prices?
-OPEC maintained its 2024 forecast for relatively strong growth in global oil demand despite lower-than-expected use in the first quarter. It said travel and tourism would support consumption in the second half of the year. OPEC+ agreed to extend most of its deep oil output cuts well into 2025.
-Analysts noted that they are now at least considering the idea that maybe oil demand will pick up in the second half, and the market may actually need some additional OPEC supply after the OPEC's demand outlook released today.
-The World Bank said on Tuesday that US economy's stronger-than-expected performance has prompted it to lift its 2024 global growth outlook, but warned that overall output would remain well below pre-pandemic levels through 2026.
-Strong US economic data and inflation still higher than the Fed's target have pushed financial markets to limit rate cut expectations to only two 25-basis points rate reductions this year, likely starting in September. Economists have said there was a considerable risk of only one or no rate cuts in 2024.
-The release of US consumer prices data for May and the conclusion of the Fed's two-day policy meeting are both scheduled for Wednesday. The European Central Bank (ECB) should persist in restraining economic growth given the inflationary pressures and wait with its next rate cut until uncertainty recedes, said chief economist Philip Lane.
-If China's producer price index (PPI) falls by two per cent or more year on year it would suggest that the deflationary risk spiral remains entrenched in China, which could result in lower demand for oil, according to analysts.
-Deflation can stifle spending as businesses and consumers delay purchases with the expectation that prices will fall, hitting economic activity and dampening oil demand. Saudi crude exports to China fell for a third straight month, pressuring prices further. US crude oil stockpiles were expected to have fallen by 1.8 million barrels in the week to June 7.
Where are prices headed?
WTI crude oil futures rose more than three per cent at the start of week, on expectations of higher demand. US Energy Secretary Jennifer Granholm told Reuters that US could hasten the replenishment rate of Strategic Petroleum Reserve as maintenance on the stockpile is completed by the end of the year. The expectations of rising fuel demand this summer also aids the prices, according to Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.
Analysts noted that Goldman Sachs predicts that crude oil demand will surge in the third quarter due to the peak summer driving season, with Brent prices potentially testing $86 a barrel. Additionally, they foresee a global oil market deficit of 1.3 million barrels per day in the third quarter.
‘’Crude oil prices are being supported by upbeat demand estimates from Goldman Sachs. However, strength in the dollar index could limit gains. We expect crude oil prices to remain volatile. Crude oil has support at $76.70–76.10 and resistance at $77.90–78.50. In INR, crude oil has support at ₹6,410–6,360 and resistance at ₹6,560–6,620,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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