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Informist, Monday, May 5, 2025

 

By Ashutosh Pati

 

MUMBAI – Rising supply and concerns about demand are likely to keep the sentiment for crude oil in bearish territory this month, according to analysts. Crude oil prices have been moving down these past few weeks and have slumped nearly 20% from the beginning of the year.

 

According to the median of estimates from 10 broking firms polled by Informist, the May crude oil contract on the Multi Commodity Exchange of India is seen in the range of INR 4,475-INR 5,225 per barrel this month. The June contract of West Texas Intermediate crude on the New York Mercantile Exchange is seen in the range of $52.0-$62.1 per barrel during the month.

 

At 1947 IST, the May crude oil contract on the MCX was down 2.9% at INR 4,800 per barrel. The June WTI contract on NYMEX was down 2.2% at $57.0 per barrel.

 

"Crude oil is expected to trade in a broad range with negative bias in May," said Deveya Gaglani, senior research analyst-commodities, at Axis Securities. "We recommend going short on rally for crude."

 

Eight members of the Organization of the Petroleum Exporting Countries and its allies--Algeria, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Kazakhstan, Oman, and Russia--agreed to raise production by 411,000 barrels per day in June, which is equivalent to three monthly increments. The cartel attributed the increase in supply to "healthy market fundamentals" reflected in low global oil inventories.

 

"The Saudis are the driving force behind larger-than-scheduled supply increases to punish members who've repeatedly produced above their targets," Warren Patterson, head of commodities strategy at ING, said in a report.

 

The original plan of OPEC and its allies was to gradually unwind production cuts totalling 2.2 million barrels a day over 18 months. However, the cartel has decided to bring around 1 million barrels per day of supply back in three months. Media reports suggest that Saudi Arabia, the group's de facto leader, has threatened similar supply hikes in the coming months if members such as Kazakhstan and Iraq do not stick to their production quotas.

 

"The key to knowing how far the Saudis will take what is starting to look like a price war is the nation's tolerance for low oil prices over time," Patterson said.

 

The second straight month of an aggressive production increase by the cartel could push the oil market into a supply glut earlier than expected. "These more aggressive supply hikes from OPEC+ mean that the oil surplus will be brought forward, leaving the market in surplus throughout 2025," Patterson added. "Previously, we assumed a balanced market in the second quarter and a small deficit in the third quarter, before moving into a large surplus by the final quarter of the year."

 

Weaker-than-expected manufacturing data from China, one of the world's leading oil consumers, amid the trade war with the US has further dented the demand outlook for crude oil. "The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side," Patterson said.

 

China's Purchasing Managers' Index showed that manufacturing activity in the country contracted in April. China's Purchasing Managers' Index fell to 49.0 in April from 50.5 in March, lower than the consensus estimate. A reading below 50 indicates a contraction in economic activity.

 

Global banks such as Goldman Sachs, ING, and Barclays have revised lower their yearly price outlooks for crude oil. Goldman Sachs cut its projection for WTI crude by $3 per barrel to average $56 per barrel for the remainder of this year. The investment bank expects Brent crude to average $60 per barrel for the rest of the year, down $2 per barrel from its earlier forecast.

 

ING lowered its forecast for Brent crude by $5 per barrel to average $65 per barrel this year. "This will change if OPEC+ reverses policy once again or if lower oil prices embolden (US) President (Donald) Trump to take a more aggressive approach toward several sanctioned oil-producing countries," it said in a report.

 

Barclays revised down its Brent crude oil forecast by $4 per barrel to $66 per barrel for 2025.

 

However, Trump's hawkish stance towards Iran could provide some support to crude oil prices. Thursday, he threatened to impose secondary sanctions on countries purchasing oil or petrochemical products from Iran.

 

"...$65 (per barrel) is possible if tensions in the Middle East (West Asia) escalate, otherwise prices are not recovering," Sriram Iyer, senior research analyst at Reliance Securities, said.

 

Trump had asked OPEC and its allies to lower oil prices and increase production a few months ago. However, lower oil prices could prompt a pullback in drilling activity in the US, Patterson said. The cartel and Trump often clashed in his first term when he demanded that OPEC raise crude oil output to compensate for the fall in Iranian supply on account of US sanctions.

 

"With West Texas Intermediate (WTI) trading closer to the mid-US$50s, there's little incentive to drill. Producer hedging may protect some oil producers initially. But US crude oil supply growth in 2025 and 2026 is looking less likely," Patterson said.

 

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

 

Brokerage	MCX support (in rupees)	MCX resistance (in rupees)	NYMEX WTI support ($)	NYMEX WTI resistance ($)
Axis Securities	4600	5100	55.0	65.0
JM Financial Services	4200	5100	42.0	66.0
Kedia Comtrade	4550	5340	54.2	61.2
Kotak Securities	4500	5250	53.0	60.0
LKP Securities	4450	5350	53.0	61.0
Mirae Asset Sharekhan	4300	5300	52.0	63.0
Motilal Oswal Financial Services	4200	5200	52.0	61.0
Prithvi Finmart	4550	5200	52.0	63.0
Reliance Securities	4500	5000	52.0	60.0
Ventura Securities	4310	5300	51.0	63.0
Median	4475	5225	52.0	62.1

 

End

 

US$1 = INR 84.25

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

 

Edited by Rajeev Pai

 

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