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Informist, Friday, Apr. 4, 2025

 

By Ashutosh Pati

 

MUMBAI – Crude oil prices are likely to be range-bound this month with the bias being negative as market participants navigate concerns about demand amid a wave of tariffs by the US and an unexpected increase in production from the Organization of the Petroleum Exporting Countries and its allies.

 

US President Donald Trump announced reciprocal tariffs against more than 60 countries and territories, sparking fear of a recession in the US and a global economic slowdown. Some of the US' top trading partners such as China, the European Union and Vietnam, have been hit the hardest with substantially higher tariffs. Trump slapped a 34% tariff on China, 46% on Vietnam, and 32% on Taiwan. The new reciprocal rate on China adds to the existing tariffs totalling 20%, bringing the tariff rate on Beijing to 54%.

 

Eight member nations of OPEC and its allies agreed to increase production by 411,000 barrels per day in May. The cartel had planned to raise output by 135,000 barrels per day under its original plan. It attributed the increase in output to healthy market fundamentals and a "positive market outlook". "However, we believe tariff uncertainty clouds the outlook for demand and prices," analysts at ING Economics said in a report.

 

Trump's reciprocal tariffs have triggered counter measures from China, and more countries may follow, potentially leading to a global trade war, hurting global economic growth and demand for oil. "There are concerns that the tariffs will lead to a further weakening of oil demand, especially as China is particularly hard hit by the reciprocal tariffs. If the other countries respond to the US tariffs with counter-tariffs, this could set off a spiral of tariffs that would put even more pressure on demand," Carsten Fritsch, commodity analyst at Commerzbank said in a report.

 

Crude oil prices plunged around 7% Thursday as market participants deal with a potential hit to demand and a rise in production by OPEC and its allies. "Tariffs and the rise in OPEC+ production led to a double whammy selling (in crude prices) and further selling is also possible," Sriram Iyer, senior research analyst at Reliance Securities, said.

 

According to the median of estimates of 15 broking firms polled by Informist, the April crude oil contract on the Multi Commodity Exchange of India is seen in the range of INR 5,600-INR 6,400 per barrel this month. The May contract of the West Texas Intermediate crude on the New York Mercantile Exchange is seen in the range of $65-$75 per barrel during the month.

 

At 1529 IST, the April crude oil contract on the MCX was down 3.9% at INR 5,514 per barrel. The May West Texas Intermediate contract on the NYMEX was down 3.7% at $64.49 per barrel.

 

Trump had asked OPEC and its allies to lower oil prices and increase production a few months ago. "WTI (crude) trades near levels where US producers may struggle to stay profitable on new production, and the move from OPEC+ signals a willingness to endure short-term price pain to reclaim lost market shares," Ole Hansen, head of commodity strategy at Saxo Bank said in a note to clients. The cartel and Trump often clashed during his first term when he demanded that OPEC raise crude oil output to compensate for the fall in Iranian supply due to the US sanctions.

 

Moreover, a potential oversupply in the oil market, driven by increases in production from countries outside OPEC and allies, continues to be a drag on prices. "The oversupply on the oil market is now (after OPEC, allies output increase) likely to be larger in the second quarter, which speaks in favour of a lower oil price," Fritsch said.

 

"The clear downside risk is that rather than pausing supply increases after May, the group (OPEC, allies) brings forward the gradual increases by two months. This would only further increase the expected surplus over 2025, particularly in the fourth quarter," Warren Patterson, head of commodities strategy at ING Economics said in a report.

 

However, Trump's hawkish stance towards Iran and Venezuela will act as tailwinds to crude prices. Trump has threatened 25% tariff on countries purchasing oil and gas from Venezuela. He also threatened to impose secondary tariffs on Russian oil, and ramped up sanctions on Iran as part of his administration's "maximum pressure" campaign to cut its exports.

 

The US gave oil producer Chevron until May 27 to wind down its oil operations and exports from Venezuela. Trump had initially given Chevron 30 days from Mar 4 to wind down that licence. "The threat of supply disruptions due to sanctions is likely to linger, particularly when it comes to the Venezuelan and Iranian oil supplies," Patterson said. "...the loss of Venezuelan export supply and Iranian exports returning to 2022 levels would be more than enough to push the market into deficit and change the outlook for prices," Patterson added.

 

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

 

Brokerages	MCX support (in rupees)	MCX resistance (in rupees)	NYMEX support ($)	NYMEX resistance ($)
Axis Securities	5450	5800	64	69
Finlit Consulting	5300	6000	66	75
HDFC Securities	5750	6510	65	78.5
ICICI Securities	5600	6400	65	75
JM Financial Services	5680	6200	66	75
Kedia Comtrade	5600	6550	65	75
Kotak Securities	5700	6500	66	75
LKP Securities	5250	6100	62	71
Mirae Asset Sharekhan	5735	6420	66.4	75
Motilal Oswal Financial Services	5700	6200	62	72
Nirmal Bang	5600	6500	62	78
Prithvi Finmart	5200	6045	62	72
Reliance Securities	5300	6000	62	71.5
Religare Broking	5650	6500	65.5	74.8
SMC Global	5700	6410	66.7	76.1
Median	5600	6400	65	75

 

End

 

US$1 = INR 85.23

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

 

Edited by Deepshikha Bhardwaj

 

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