WTI Crude oil futures ended the previous week 1.4% lower and closed at $90.77 per bbl, amid increasing concerns of a global economic slowdown. Recession fears continue to exert pressure on energy markets, with Fed minutes signalling a strong commitment to bringing down inflation to the 2% target range. On top of that, concerning industrial production figures and further Covid lockdowns in China added to the outlook of a decline in energy demand.
Still, robust EIA inventory data helped oil pare some initial losses. US crude stockpiles sank by 7.06 million barrels in the week ended 12th August, exports rose to a record and gasoline demand climbed to the highest this year. Crude exports rose to a record as European refiners rushed to stock up the supplies ahead of a ban on Russian oil imports. Meanwhile, Americans are driving more as a response to gasoline prices coming off of record highs, pushing demand to the highest this year. The four-week average of US gasoline supplied — a proxy for consumption — rose to about 9.1 million barrels a day.
Earlier last week, efforts to revive the 2015 nuclear deal that could boost Iranian oil exports by about 1.3 million bpd drove prices to hit six-month lows. MCX Crude oil August futures closed at Rs.7,221 per bbl, down by 1.8%.
Expected Outlook: Jackson Hole symposium in focus
Crude oil has found a new trigger after Saudi Arabia warned that OPEC+ could reduce output to counter sharp declines in oil prices. Saudi Oil Minister Prince Abdulaziz bin Salman told Bloomberg that extreme volatility and a lack of liquidity in the futures market do not reflect fundamentals that are still showing signs of physical tightness, dangling the threat of potential OPEC+ production cuts that could come at any time. Still, concerns on the Iran nuclear deal revival might limit any sharp upside. The odds of a possible deal are rising day by day and the US is examining the Iranian response to a final accord tabled by the EU. President Joe Biden spoke on Sunday with leaders from France, Germany and the UK about reviving a nuclear deal with Iran, which could lead to a surge in supply from the OPEC producer.
A slew of economic data including PMI and US GDP are due this week. Any signs of weakness in world’s top economies might further take a toll on oil prices. The slowdown in China due to ongoing power shortages and covid restrictions might further add to the downside.
Conclusion
Dollar index and US treasury yields have been rising ahead of the Jackson hole symposium due this week, on expectations of some hawkish comments from Fed officials amid the backdrop of recent ease in financial conditions, making the Fed’s job tougher. We expect MCX Crude oil September futures to trade in the range of Rs 7,000 – 7,500 per bbl for the week.
