Oil prices score 3-month highs on tighter supply; Brent shoots higher to $87/bbl topping April peak

Oil prices shrugged off China's demand concerns and accelerated to its three-month high peak on August 9 as tighter supply owing to Saudi and Russian output cuts weighed on market sentiment. Oil rose over 2 per cent as Brent crude touched the highest price since April, offsetting concerns over slow demand from China and a report showing rising U.S. crude inventories.

In the previous session, oil came under pressure from Chinese data showing crude oil imports in July fell 18.8 per cent from the previous month to their lowest daily rate since January, although they were up 17 per cent from a year earlier, according to a report by news agency Reuters.

Brent crude was up $1.00, or 1.2 per cent, at $87.17, having touched $87.24, the highest price since April 13. US West Texas Intermediate (WTI) crude gained 80 cents, or 1 per cent, to $83.72. The US benchmark touched $84.11, the highest price since November 2022.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 1.74 per cent at ₹6,959 per bbl, having swung between ₹6,845 and ₹7,009 per bbl during the session so far, against a previous close of ₹6,840 per barrel.

What's driving crude oil prices?

-Top exporter Saudi Arabia last week extended its voluntary production cut of 1 million barrels per day for another month to include September, and Russia said it would cut oil exports by 300,000 bpd in September. The tightening supply has supported the ris eof crude oil prices.

-Crude posted its sixth consecutive weekly gain last week, helped by a reduction in supplies by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) and hopes of stimulus boosting oil demand recovery in China.

-On Tuesday, Saudi Arabia's cabinet said it reaffirmed its support for precautionary measures by the OPEC+, to stabilise the market, according to the kingdom's state media.

-"The latest recovery is mainly driven by the pledge of major producers, like Saudi Arabia and Russia, to keep supply subdued for another month," Charalampos Pissouros, senior investment analyst at broker XM told news agency Reuters.

-The US crude oil production is expected to rise by 850,000 barrels per day to record 12.76 million bpd in 2023, according to a monthly report from the Energy Information Administration (EIA). Crude oil production is expected to rise by 330,000 barrels per day to 13.09 million bpd in 2024, showed EIA data.

-The last record output was 12.3 million bpd in 2019, before the COVID-19 pandemic weighed on demand and prices, and drillers were hit by higher costs that impacted profit margins and investor demands to limit the spending, according to news agency Reuters.

Technical Outlook

‘’Asia's imports of crude reached a new high in July as China and India, the main two consumers in the region, continued to purchase large volumes of cheap Russian oil. A total of 27.92 million barrels per day arrived in Asia in July, eclipsing May's previous record high of 27.35 million bpd and higher than June's 27.53 million bpd,'' said domestic brokerage firm Religare Broking.

Religare Broking has mild-bullish sentiments on MCX Crude Oil. ‘’MACD divergence suggest mild positivity prevails in the counter. However, a dip below 6860 region may weaken the prices,'' said the brokerage firm in its research report. Religare sees technical levels between ₹6,860 - ₹7,210. The turnaround is seen at ₹6,860.