Oil retreats from 3-month high peak ahead of US Fed outcome, lower US crude stock
3 min read 26 Jul 2023, 10:12 PM ISTBack home, on the Multi Commodity Exchange (MCX), crude oil futures due for a August 21 expiry, were last trading lower by 0.51 per cent at ₹6,496 per bbl, having swung between ₹6,456 and ₹6,539 per bbl during the session so far
PremiumOil prices retreated from their three-month high peak and edged lower on July 26, after US crude inventories declined less than expected in the week and investors took to cautious trading ahead of the US Federal Reserve meeting outcome. Oil prices have rallied for four weeks, buoyed by signs of tighter supplies, largely linked to output cuts by Saudi Arabia and Russia, as well as Chinese authorities' pledges to shore up the world's second-biggest economy.
Brent crude futures were down 32 cents, or 0.4 per cent, at $83.32 a barrel, while US West Texas Intermediate (WTI) crude was at $79.32, down 31 cents. Both fell by more than $1 earlier in the session, after hitting three-month highs on Tuesday. Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a August 21 expiry, were last trading lower by 0.51 per cent at ₹6,496 per bbl, having swung between ₹6,456 and ₹6,539 per bbl during the session so far, against a previous close of ₹6,529 per barrel.
Why did oil prices fall today?
-US crude inventories drew by 600,000 barrels in the week ended July 21, according to data from the U.S. Energy Information Administration, compared with estimates for a draw of 2.35 million barrels. Industry group American Petroleum Institute figures had indicated a 1.32 million barrels build. Petrol and diesel stocks also drew less than expected, EIA data showed.
-The market expects Saudi Arabia to roll over its August output cuts to September, Russia is expected to significantly increase oil loading in September, bringing to an end steep export cuts, according to news agency Reuters.
-Meanwhile, concern is high over whether China, also the world's second-biggest oil consumer, will deliver on its policy pledges. "The market will continue to be in a tug-of-war between tightening global supply and fears of slowing demand due to the global economic slowdown," Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, told Reuters.
-Investors had squared their positions ahead of the Fed rate decision, according to analysts. Following a pause on rate hikes in June, it is highly probable that the US Federal Reserve will opt for an increase in benchmark rates by 25 basis points, bringing them to a range of 5.25 per cent to 5.50 per cent on Wednesday.
Global investors will be paying close attention to the Federal Reserve's position on inflation and its forthcoming strategies concerning the trajectory of rate hikes. It is expected that Federal Reserve might indicate the conclusion of the ongoing rate hike phase. According to a Reuters poll of 106 economists, a majority of them hold the belief that the rate hike in July will mark the final step in the current tightening cycle.
-Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.
Technical View
‘’Crude oil prices hovered in the vicinity of three-month high with investors cautious ahead of Fed’s interest rates announcement. Crude oil prices are on track of a fifth weekly gain fueled by tighter supplies amid output cuts by the Organization of the Petroleum Exporting Countries and allies or OPEC+,'' said domestic brokerage firm Religare Broking.
Saudi oil exports fell almost 40 per cent in May from the same period a year ago weighing on overall total exports, amid an extension of voluntary production cuts and lower oil prices, according to the brokerage firm.
Religare Broking has mild-bullish sentiments on MCX Crude Oil.
‘’MACD divergence suggest mild positivity. Sturdy gains above 6,500 region may strengthen the prices. Whereas, a dip below 6,390 may weaken the prices for the day,'' said the brokerage firm in its research report. Religare sees technical levels between ₹6,500 - ₹6,720. The turnaround is seen at ₹6,390.
