Oil scores biggest monthly gain since January 2022 on Saudi Arabia, Russia output cuts; Brent climbs above $85/bbl
3 min read 31 Jul 2023, 10:25 PM ISTThe multi-month gain rally comes ahead of the voluntary output cuts announced by Saudi Arabia and Russia which will come into effect from August 1.
PremiumOil prices rallied to a fresh three-month high on July 31 and recorded their steepest monthly gains since January 2022, supported by signs of tightening global supply and rising demand through the rest of this year. This comes ahead of the voluntary output cuts announced by Saudi Arabia and Russia which will come into effect from August 1. The rally was also triggered due to expectations that Saudi Arabia will extend voluntary output cuts into September and tighten the global supply even further.
More actively traded October Brent crude futures rose 73 cents, or 0.9 per cemt, to $85.14 a barrel. The September Brent contract, which will expire at settlement on Monday, was trading 0.6 per cent higher at $85.52 a barrel. US West Texas Intermediate crude futures rose 85 cents, or 1.1 per cent, to $81.43 a barrel, according to news agency Reuters.
Brent and WTI settled on Friday at their highest levels since April, gaining for a fifth straight week. Both benchmarks are set to close July with their biggest monthly gains since January 2022. NYMEX crude and ICE Brent gained more than 4.00 per cent last week.
Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 1.57 per cent at ₹6,682 per bbl, having swung between ₹6,592 and ₹6,718 per bbl during the session so far, against a previous close of ₹6,579 per barrel.
What's driving the rally in crude oil market?
-Saudi Arabia is expected to extend a voluntary oil output cut of 1 million barrels per day (bpd) for another month to include September. Saudi output fell by 860,000 bpd in July, while total production from the Organization of Petroleum Exporting Countries (OPEC) was 840,000 bpd lower, according to a survey conducted by Reuters.
-The International Energy Agency (IEA) said that the crude oil demand is set to hit a record high this year but slightly less than anticipated. It said that economic headwinds and interest rate hikes mean the increase will be slightly less than anticipated. While demand is expected to reach 102.1 million bpd, the Paris-based energy watchdog lowered its forecast for growth of the first time this year, by 220,000 bpd, to 2.2 million bpd.
-India and China, major crude oil consumers in Asia, imported record volumes of Russian crude oil in June--
--India's imports of Russian oil edged up to an all-time high in June, though growing at the slowest pace since October signaling its appetite for Russian oil may have peaked. India took nearly 2 million barrels per day of Russian crude in June, a marginal growth from the previous month. Prior to the Ukraine war, India rarely bought oil from Russia due to high freight costs.
--China's imports of crude oil from Russia hit an all-time high in June, with refiners continuing to snap up Russian ESPO even as discounts against international benchmarks narrow. Arrivals from Russia totaled 10.50 million metric tons in June, or 2.56 million bpd. Cargo volumes were up 44 per cent from the same month last year.
-Oil inventories are beginning to drop elsewhere too, especially in the US, where the government has started refilling the Strategic Petroleum Reserve from its lowest level in multiple decades. Analysts polled by Reuters on Monday estimated on average that US crude inventories fell by about 900,000 barrels in the week to July 28.
-Goldman Sachs estimated that global oil demand rose to a record 102.8 million bpd in July and it revised up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the US, offsetting a downgrade for China's consumption.
Outlook
‘’Upbeat economic number from the United States, the world's largest user of crude oil, and the likelihood of continued supply cutbacks from OPEC and its allies lifted the price of crude oil,'' said Geojit Financial Services in its monthly crude oil report under commodity insights.
‘’Rising uncertainties regarding economic growth in the second half of 2023 amid ongoing high inflation, already higher interest rates from key central banks tend to check the prices,'' added the domestic brokerage house.
Technical View
NYMEX Crude: MACD Bullish Divergence suggest positivity in the counter. Extended gains above 83.60 may strengthen the prices further. Weakness expected below 78.60, according to Geojit Financial Services.
MCX Crude: Rise above 6850 region with large market participation may strengthen the momentum. Weakness expected with dips below 6350 region, said the brokerage in its report.
