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Informist, Friday, Oct. 4, 2024

 

By Afra Abubacker and Sandeep Sinha

 

NEW DELHI/MUMBAI – Crude oil prices have climbed back over $70-per-barrel levels as the recent Iran-Israel tensions have restored the geopolitical premium on oil. However, analysts see the rally in crude oil prices fizzling as concern over demand persists. Further, the spare production capacity of the Organisation of the Petroleum Exporting Countries and its allies provides some buffer from Iran's supply risks. 

 

"While the recent geopolitical tensions could create short-term fluctuations, to date they have not had a significant enough influence to completely offset ongoing concerns over demand," ANZ Research said in a note today. 

 

According to the median of estimates by 15 brokerages polled by Informist, the October crude oil contract on the Multi Commodity Exchange of India is seen in the range of INR 5,500-6,280 per barrel this month. The WTI October contract on the NYMEX is seen in the range of $65.00-$75.00 per barrel for the rest of the month. At the time of writing this report, the October crude oil contract on MCX was up 2% at INR 6,277 per barrel, and the November WTI contract on the NYMEX was $74.72 per barrel, up 1% from the previous close. 

 

"For crude oil, West Texas Intermediate (WTI) is currently trading above key support at $69.81. As long as prices remain above this level, they are expected to find support, with targets set at $72.62, $73.62, and $74. A breakdown below the support would likely resume the bearish trajectory, with a price range between $68 and $66," Riya Singh – Research Analyst, Commodities and Currency, Emkay Global Financial Services Ltd, said. 

 

"On MCX, support is found at 5,850, with an initial target of 6,095 (50-day Simple Moving Average). Surpassing this level could propel prices towards 6,200. However, a breach of support may drive prices lower, returning to the 5,600 range," Singh said.

 

Last month, demand concerns from China and the US had put oil at almost a year low of $65.27 per barrel. The global markets, especially India, cheered the dipping prices and New Delhi scrapped the windfall tax on crude oil, which boosted oil stocks. 

 

However, Iran launched multiple air strikes on Israel on Oct. 1, and supply risks from the spillover of the Israel-Palestine war to wider oil producers like Iran have pulled up prices. Iran is the third-largest oil producer among the Organization of the Petroleum Exporting Countries, producing almost 4 million barrels per day, according to the Energy Information Administration. 

 

Apart from possible Israeli attacks on Iran's oil fields, the country also runs sanction risks from the US and its allies. However, the prospects of additional OPEC oil supply hitting the market in December will cool down supply worries and weigh on prices. 

 

On Wednesday, the Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries retained its supply policy of raising output from December. "The JMMC emphasiszed the critical importance of achieving full conformity and compensation," OPEC said in a statement after the meeting. "Furthermore, the Committee will continuously assess market conditions," it added. 

 

OPEC and its allies have voluntarily cut output by a total of 5.86 million barrels per day since late 2022. The cartel plans to increase output by 180,000 bpd from December as part of a gradual easing of the voluntary output cuts extending to 2025. 

 

Though Saudi has stressed that member countries comply with the cartel's voluntary output cuts, OPEC's statement on Wednesday raised doubts over some countries' production levels last month. Iraq, Kazakhstan, and Russia had told OPEC that they had delivered on their promised cuts in September. However, the OPEC statement said the group will verify the above-mentioned countries' production levels through secondary sources.

 

OPEC members pumping more oil beyond their quota would make OPEC's voluntary production cuts ineffective. According to a Wall Street Journal report, Saudi Oil Minister Prince Abdulaziz bin Salman called some countries "cheaters" for not sticking to promised production cuts. He also said prices could drop to as low as $50 per barrel if members don't abide by the group's agreements, the report said quoting OPEC delegates.

 

"If they manage to get this cheating under control, there's a small chance this won't impact prices too much. But that's a big if," Wall Street Journal quoted Ole Hansen, head of commodity strategy at Saxo Bank. "This is based on the assumption that the countries that are overproducing would cut back and I'm still skeptical," Hansen added. 

 

Despite Saudi's efforts to defend oil prices with output cuts and restored geopolitical premium, analysts do not see crude oil prices rising beyond $75-$77 per barrel in October on looming demand concerns from China, the top importer of the commodity. China's industrial activity shrank for a fifth straight month to 49.8 in September. 

 

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

 

Brokerages	MCX support (in rupees)	MCX resistance (in rupees)	NYMEX support ($)	NYMEX resistance ($)
Angel One	5400	6390	64.25	76.5
Axis Sec	5700	6100	68	72
BlinkX by JM Financial	5300	6100	61.5	74.5
Emkay Global	5850	6200	66	74
Finlit Consulting	5700	6400	66	75
HDFC Sec	5330	6550	61.75	77
ICICI	5500	6200	65	75
Kedia	5300	5950	63	70
Kotak	5600	6400	66.5	75.8
Mehta Sec	5650	6650	67.5	76.2
Mofsl	5500	6300	65	76
Prithvi Finmart	5580	6440	66	76.6
Reliance Sec	5430	6120	60	73
SMC	5670	6280	66.8	76
Sharekhan by BNP Paribas	5400	6135	65	73
Median	5500	6280	65	75

 

End

 

US$1 = INR 83.97

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

 

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