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Informist, Thursday, Dec. 5, 2024

By Ashutosh Pati and Sandeep Sinha

MUMBAI – Crude oil prices are likely to rise this month after falling below $70 per barrel over the last week due to concerns over global supply and signs of improvement in the Chinese economy, which could spur demand for the commodity, analysts said.

The Organization of the Petroleum Exporting Countries and allies will meet Thursday to discuss the output policy for 2025. Eight members of the cartel--Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman--are set to increase the production, amounting to 2.2 million barrels per day from January. However, market participants expect the cartel to further delay the planned production increases for three more months due to concerns over a global supply glut.

"...the oil balance does not need this additional supply as it will push the market into a large surplus," Warren Patterson, head of commodities strategy, and Ewa Manthey, commodities strategist at ING Economics, said in a research report. "The challenge is that the group (OPEC and allies) needs to find a balance between trying to support the market and limiting its loss in market share. Complicating matters still further, some members are still failing to stick to their agreed production levels," they added.

Meanwhile, on Tuesday, the US imposed sanctions on Iran, targeting 35 entities and vessels transporting Iranian petroleum to foreign markets, which could support crude oil prices. The action was in line with the sanctions imposed on Iran in October following the attack against Israel on Oct. 1, the US Department of the Treasury said in a release on Tuesday. "The United States remains committed to disrupting the shadow fleet of vessels and operators that facilitate these illicit activities, using the full range of our tools and authorities," Bradley T. Smith, acting under secretary for terrorism and financial intelligence, US Treasury, said in the release.

According to the median of estimates by 14 brokerages polled by Informist, the December crude oil contract on the Multi Commodity Exchange of India is seen in the range of INR 5,500-6,188 per barrel. According to the median of estimates by 13 brokerages polled by Informist, the January contract of West Texas Intermediate crude on the New York Mercantile Exchange is seen in the range of $65.00-$75.00 per barrel for the rest of the month.

The ceasefire agreement signed by Israel and Lebanon on Nov. 27 appears to be on thin ice as attacks from both sides continued over the week. On Monday, Israeli strikes killed nine people in southern Lebanon after Hezbollah fired at Israeli-occupied territory, citing Israeli truce violations, CNN World reported.

"Crude oil is expected to be on a bullish trend this December," said N.S. Ramaswamy, head of commodities at Ventura Securities. "Prices face resistance at INR 5,900-5,950, and a breakout above these levels could extend the uptrend. However, if prices close below INR 5,600, the bullish trend may reverse, potentially leading to further declines," Ramaswamy said.

Meanwhile, China's official manufacturing purchasing managers' index rose to 50.3 in November from 50.1 in October. The country's Caixin manufacturing purchasing managers' index expanded for the second consecutive month, rising to 51.5 in November from 50.3 in October. The pace of growth was the fastest since June. The China Economic Work Conference is scheduled on Dec. 11-12, where the country is expected to announce additional stimulus measures. China's oil demand in 2024 is projected at 16.81 million barrels per day, 2.8% higher than in 2023, OPEC said in its monthly oil market report. In 2025, the country is expected to consume 17.12 million barrels per day of oil.

At the time of writing this report, the December crude oil contract on the MCX was down 0.5% at INR 5,819 per barrel and the January WTI contract on the NYMEX was down 0.1% at $68.49 per barrel.

Ajay Kedia, director at Kedia Advisory, expects WTI prices to hover around $67-72 per barrel with the immediate hurdle at $72 per barrel. A breakout above these levels could see prices touch $74.75 per barrel. On the domestic exchange, a break above INR 6,050 per barrel could see prices rising to INR 6,400 per barrel.

Investors will now monitor the US Federal Reserve's next moves. Another interest rate cut of 25 bps this month could lend some support to crude oil prices. Lower interest rates reduce borrowing costs and increase liquidity in the economy, which bodes well for crude oil demand. In the US, the Job Openings and Labor Turnover Survey report showed that the number of job openings rose 372,000 to 7.7 million in October. According to Fed fund futures, the odds of a 25-bps rate cut by the Fed at its Dec. 18 meeting rose to 74% from 66.5% last week, while those for no rate cut fell to 26% from 33.5% a week ago.

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

End

US$1 = INR 84.73

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

Edited by Namrata Rao

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