Oil declines over bearish impact from rate hikes, crude inventories in focus; what lies ahead?
- On the Multi Commodity Exchange (MCX), crude oil futures due for a July 19 expiry, were last trading lower by at 1.66 per cent at ₹5,854 per bbl, having swung between ₹5,825 and ₹5,966 per bbl during the session
Oil futures declined on June 22, with trader concern over bearish impact from interest rate hikes countered by potentially bullish US oil inventory data after preliminary figures showed a fall in stocks. US equities, which often move in tandem with oil, were also down. Inflation in rich economies and uncertainty over China's economy also outweighed the impact of output cuts announced by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
Brent futures dropped by $1.69, or 2.2 per cent, to $75.43 a barrel and US West Texas Intermediate (WTI) crude futures were down $1.63, or 2.3 per cent, at $70.90. The benchmarks erased gains from the previous session, during which US corn and soybean prices raced to multi-month highs, raising expectations that crop shortfalls could lower biofuels blending and increase oil demand.
Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a July 19 expiry, were last trading lower by at 1.66 per cent at ₹5,854 per bbl, having swung between ₹5,825 and ₹5,966 per bbl during the session, compared to their previous close of ₹5,953 per bbl.
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Crude inventories, rate hike impact on oil prices
The crude oil market has been cautious after Fed Chair Jerome Powell said two more interest rate hikes of 25 basis points each by the end of the year was "a pretty good guess".
The Bank of England on June 22 raised interest rates by a bigger than expected half a percentage point to fight stubbornly high inflation. The increase was the central bank's 13th straight hike. Higher interest rates could slow economic growth and reduce oil demand. BoE's half-point hike was in stark contrast to the Federal Reserve, which last week pressed pause on US rate hikes after a sharp easing in the country's inflation.
Official US oil inventory data and Chinese factory activity data due next week are further drivers for oil prices. In a preliminary indicator, industry data showed US crude oil inventories fell by about 1.2 million barrels last week, defying forecasts for a build of 300,000 barrels, according to news agency Reuters.
What analysts say
An executive at US shale producer EOG Resources told Reuters that oil prices could rise as muted increases in US oil production and cuts by OPEC producers will limit supply in the months ahead. "With demand seasonally rising over the coming months, we expect larger oil inventory declines to become visible and support oil prices," said UBS strategist Giovanni Staunovo.
Back home, Religare Broking recommends buying Crude Oil July at an initiation range of ₹5,700- ₹5,725 with a stoploss of ₹5,518 and a target price of ₹6,080.
‘’The interest rate news has been digested by the market, making the bulls at ease, but the upside is likely to remain capped since the global economic uncertainties continue to weigh on the demand outlook,'' said Religare Broking.
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