Crude oil prices to end this week on muted note as demand concerns drag; what to expect in coming week?

At the moment, Brent crude futures traded at $76.24 per barrel, up by 0.4%. While the US West Texas Intermediate crude inched higher by 15 cents, or 0.2%, to perform at $71.44 per barrel.

In India, MCX crude oil futures traded lower by ₹31 or 0.53% to ₹5872 per barrel. The crude futures ranged from ₹5834 per barrel to ₹5926 per barrel during the day.

UBS analyst Giovanni Staunovo told Reuters that “The Saudi cut lifted prices slightly, and then the chatter of the potential return of Iranian barrels saw a large drop. Long investors are likely on the sidelines until larger oil inventory declines become visible.”

The international crude oil prices started the current week on the upside front after Saudi Arabia’s plan over the weekend to cut more output. This would be over the output cuts agreed earlier with the Organization of Petroleum Exporting Countries and its allies. Further, optimism over higher demand in the U.S. summer driving season also lifted the prices.

OPEC+ reached a deal on output policy and decided to reduce overall production targets from 2024 by a further total of 1.4 million barrels per day (bpd). Saudi Arabia, OPEC cartel’s dominant member, will make deep production cuts of 1 million bpd starting from July, as part of a broader output-limiting OPEC+ deal as the group faces flagging oil prices and a looming supply glut. The rest of the OPEC producers agreed to extend earlier cuts in supply through the end of 2024.

However, an uptick in U.S. fuel stocks and a weakening in Chinese export data dampened the market’s mood in the latter days of the trading week.

In May month, China’s factory gate prices tumbled at the fastest pace since February 2016 and also quicker than forecasts of 4.3% in a Reuters poll, as faltering demand weighed on a slowing manufacturing sector which fogged the prospects of the fragile economic recovery. The National Bureau of Statistics (NBS) in China revealed that the country’s producer price index (PPI) for May dipped to 4.6%, which is also the eighth-consecutive drop.

Staunovo added that some analysts expect oil prices to rise if the U.S. Federal Reserve pauses hiking interest rates at its next meeting over June 13-14. The Fed’s decision may also influence Saudi Arabia’s next move.

On Thursday, crude oil prices dropped but recouped earlier losses after the US and Iran both denied a report that they were close to a nuclear deal. Oil prices were lower earlier on concerns about US fuel demand, said ICICI Securities in its note.

Nevertheless, the volatile range in crude prices has pushed the rupee to hold within its range.

Jateen Trivedi, VP Research Analyst at LKP Securities on Friday said, the rupee traded within a narrow range of 82.41-82.52 as market participants awaited the upcoming US interest rate decision. The currency is expected to maintain its sideways trend between the range of 82.30-82.65. The volatile range in crude prices has played a role in keeping the rupee within its range. Additionally, the weakness in the dollar index has provided some support to the rupee, keeping it above the key level of 82.50.

Among the key factors to dictate crude oil prices would be inflation data and interest rate decisions in the coming weeks.

In the week ahead, ICICI Securities said, “Crude oil prices are expected to trade with a negative bias for the day as demand concerns will outweigh prospects of tighter supply. Meanwhile, the sharp downside may be cushioned as the US and Iran both denied a report that they were close to a nuclear deal. Additionally, the US Federal Reserve is likely to skip a rate hike at its next meeting.”

The brokerage expects MCX Crude oil likely to continue its downward trend towards the level of ₹5800. Also, MCX Natural gas is expected to continue its upward trend towards the level of ₹197 as long as it stays above ₹187 level.

Updated: 09 Jun 2023, 10:29 PM IST