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Informist, Wednesday, Sep 4, 2024

 

By Afra Abubacker and Sandeep Sinha

 

NEW DELHI – Crude oil prices, which fell to their lowest level since December on Wednesday, are likely to head down further this month as supply is seen increasing and the demand outlook from China continues to look unpromising. Additionally, with tensions easing in West Asia, the geopolitical premium of crude is seen ebbing away. 

 

The Organisation of the Petroleum Exporting Countries and allies are set to increase supply from October. OPEC and allies had decided in June to roll over the voluntary output cuts of 2.2 mln barrels per day until the end of September, but said they aim to gradually phase them out from October to September 2025.

 

However, as oil prices have been struggling at lower levels over the last few months, OPEC's Joint Ministerial Monitoring Committee in August said that the cartel could pause or reverse the gradual phasing out of the voluntary production cuts in the future. The market will eagerly wait to see if OPEC and its allies will indeed decide to pause their voluntary production cuts or go ahead with its June plan.

 

Further, Libya is likely to broker a deal to restore its oil supply after it closed its largest oil field last month amid a row over leadership of the country's central bank. Libya's two legislative bodies on Tuesday agreed to jointly appoint a central bank governor, potentially defusing a battle for control of the country's oil revenue that has slashed production, according to a Reuters report. The potential agreement to restore oil supply could mean the return of more than 500,000 bbl a day to the market, Dow Jones quoted ANZ research analysts as saying in a research note.

 

Today, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange fell below $70 per barrel for the first time since December. Concerns about higher supply in the coming months and poor demand from China have weighed on sentiments. Data showed that factory activity in China contracted for a fourth consecutive month, cementing demand concerns from the top oil importer. 

 

According to the median of estimates by 16 brokerages polled by Informist, the September crude oil contract on the Multi Commodity Exchange of India is seen in the range of 5,900-6,550 rupees per bbl this month. The WTI October contract on the NYMEX is seen in the range of $69.05-$78.19 per bbl for the rest of the month.

 

When writing this report, the September crude oil contract on MCX was down 0.4% at 5,895 rupees per bbl, and the October WTI contract on the NYMEX was at $70 per bbl, down 0.4%. "The market breaking down below $70 would be very negative indeed. And at that point, I think you really start to see this thing fall apart," Christopher Lewis, an expert at fxempire.com, said in a report. 

 

Data showed that the US manufacturing purchasing managers' index, released on Tuesday, fell more than expected in August to 47.2. Economists polled by Dow Jones expected it at 47.9. However, demand is expected to recover with prospects of imminent rate cuts by the Federal Reserve at its monetary policy meeting on Sep 17-18 as US inflation is easing.

 

Investors are likely to monitor the US Fed's next move, and if the central bank cuts interest rates this month, it is expected to lend some support to crude oil prices. Lower interest rates reduce borrowing costs for the public and increase liquidity in the economy, which bodes well for crude oil demand. The odds of a 25-basis-point rate cut by the Federal Reserve this month is at 59%, while that for a 50-bps rate cut is 41%, according to the CME FedWatch tool.

 

Following is a summary of the poll by Informist on crude oil prices for September and details of the estimates by respondents:

 

Brokerages	MCX support (in rupees)	MCX resistance (in rupees)	NYMEX support ($)	NYMEX resistance ($)
Angel One	5540	6850	65.7	81.2
Axis Securities	5900	6500	70	78
BlinkX by JM Financial	5850	6700	68.5	81
Finlit Consulting	5900	6300	70	75
HDFC Securities	5910	6400	67.9	79.1
ICICI Securities	5700	6600	68	80
Kedia Comtrade	5950	6600	70.5	78
Kotak Institutional Equities	5950	6740	70.85	77.75
LKP Securities	6000	6350	71	75.5
Mehta Securities	5750	6800	67.5	80.2
Motilal Oswal	5950	6680	64.8	70.5
Prithvi Finmart	5880	6500	69.5	78.5
Reliance Securities	5900	6485	68.6	77.38
SMC Global	6000	6350	70.8	77.2
Sharekhan by BNP Paribas	5750	6500	66	78.38
Vijay Bhambwani	5903	6619	69.95	78.65
Median	5900	6550	69.05	78.19

 

End

US$1 = 83.9650 rupees

 

Edited by Tanima Banerjee

 

 

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