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Informist, Monday, Jan. 6, 2025

 

By Ashutosh Pati

 

MUMBAI – Crude oil prices are expected to rise this month amid signs of improvement in the Chinese economy and potential sanctions on Iranian and Russian oil by the US, analysts said. Falling oil inventories in the US and President-elect Donald Trump's pro-fossil fuel stance could also support prices in the short term.

 

According to the median of estimates by 12 brokerages polled by Informist, the January crude oil contract on the Multi Commodity Exchange of India is seen in the range of INR 5,842.5-INR 6,600 per barrel this month. The February contract of West Texas Intermediate crude on the New York Mercantile Exchange is seen in the range of $67.00-$76.50 per barrel for the rest of the month.

 

At the time of writing this report, the January crude oil contract on the MCX was down 0.3% at INR 6,352 per barrel and the February WTI contract on NYMEX was up 0.1% at $74.05 per barrel.

 

The oil market has started the year on a strong foot as prices rose over 5% on the New York Mercantile Exchange over the last week on positive economic data from China and a stronger physical market in West Asia.

 

"The outgoing Biden administration plans to impose more sanctions on Russia over its war on Ukraine, while Iran could see its exports declining sharply due to tighter sanction from the US. All this has supported the bullish momentum in crude oil," Mohammed Imran, a research analyst at Mirae Asset Sharekhan, said in a note.

 

Crude oil inventories in the US, excluding those in the strategic petroleum reserves, fell 1.2 million barrels from the previous week to 415.6 million barrels in the week ended Friday, marking the sixth consecutive weekly decline. Further, a cold wave across the US is also expected to boost demand for oil and support prices.

 

The recent strength in the market appears to be coming on the back of a stronger physical market in West Asia, Warren Patterson, head of commodities strategy, and Ewa Manthey, commodities strategist at ING Economics, said in a report. "There are suggestions that Asian buyers have been looking to other Middle Eastern grades amid broader sanctions against Russia and Iran," the report said.

 

Chinese President Xi Jinping, in his New Year's Day speech, has pledged more proactive economic policies to support growth in 2025.

 

China's manufacturing purchasing managers' index came in at 50.1 in December from 50.3 in November, data from the National Bureau of Statistics showed. This marked the third consecutive month the index stood above 50, indicating expansion in the economy.

 

Caixin China General manufacturing purchasing managers' index data came in at 50.5 in December from 51.5 in November, also marking the third straight month of expansion. A PMI reading of above 50 indicates expansion in activity, while a number below that indicates contraction. Despite missing analysts' expectations of 51.7 polled by Reuters, the economic data raised expectations of fresh policy support from Chinese lawmakers to spur growth in the world's second-biggest economy.

 

"China's policy stimulus trickling into sectors like services and construction should start indicating recovery and growth. Eventually, it could show price stability for crude," said N.S. Ramaswamy, head of commodities and customer relationship management at Ventura Securities.

 

However, a potential oversupply in the oil market, driven by increases in production from countries outside the Organization of the Petroleum Exporting Countries and allies, could limit gains in oil prices. The US Energy Information Administration sees global oil output rising by 1.6 million barrels per day in 2025 and expects almost 90% of the growth to come from non-OPEC countries.

 

Eight members of OPEC and its allies--Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman--extended their voluntary production cuts of crude oil till the end of March. OPEC now plans to increase supply at a slower pace, taking 18 months to return to full supply, compared to 12 months earlier.

 

The International Energy Agency expects a surplus of 950,000 barrels per day in 2025 due to uncertainty over when the unwinding of OPEC's voluntary production cuts will actually start. If the cartel unwinds the voluntary cuts from the end of March, the supply glut could rise to 1.4 million barrels per day.

 

Additionally, the US Federal Reserve signalled fewer rate cuts this year, which would strengthen the dollar. A stronger dollar will keep oil expensive for other currency holders, thus dampening demand and capping prices.

 

The upcoming US jobs report could influence expectations from the Federal Reserve's policy, with broader implications for the US dollar and crude oil, Reliance Securities said in a report. The jobs report is due to be released Tuesday.

 

OPEC lowered its forecasts for growth in global crude oil demand in 2025 for a fifth consecutive month in December. The cartel sees demand for crude oil rising by 1.4 million barrels per day, 90,000 barrels per day lower than the previous month's estimate.

 

Another downward drag for crude prices could be the acceleration in electric-vehicle adoption in China, Ramaswamy said. China has already increased the use of liquified natural gas to power trucks with reduced diesel and gasoline consumption, he added.

 

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

 

Brokerages	MCX support (in rupees)	MCX resistance (in rupees)	NYMEX support ($)	NYMEX resistance ($)
Axis Securities	5900	6350	69	73
HDFC Securities	5690	6740	66.5	76.4
ICICI Securities	5700	6600	66	78
Kedia Comtrade	5650	6520	66	76
Kotak Securities	5685	6791	61.4	81.8
LKP Securities	5800	6350	67	74.5
Mirae Asset Sharekhan	5750	6600	67	76
Motilal Oswal	6100	6560	71	76.35
Prithvi Finmart	5940	6450	66	76.6
Reliance Securities	5885	6685	69.85	77.15
SMC Global	5980	6700	68	80
Ventura Securities	5950	6600	70	76.8
Median	5842.5	6600	67	76.5

 

 

End

 

US$1 = INR 85.83

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

 

 

With inputs from Afra Abubacker and Sandeep Sinha

Edited by Tanima Banerjee

 

 

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