Oil shrugs off Fed rate hike impact, rises over 2% on tighter supply; Brent tops April peak of $84/bbl-mark
2 min read 27 Jul 2023, 10:37 PM ISTCrude has posted four consecutive weekly gains on an expected tightening of supply because of output cuts by the Organization of the Petroleum Exporting Countries and its allies known as OPEC+, as well as some involuntary outages.
PremiumOil prices climbed over two per cent on July 27, shrugging off previous sessions' US Federal Reserve rate hike impact, with Brent crude topping $84 a barrel for the first time since April on tightening supply. Crude has posted four consecutive weekly gains on an expected tightening of supply because of output cuts by the Organization of the Petroleum Exporting Countries and its allies known as OPEC+, as well as some involuntary outages. Renewed bullishness on the outlook for Chinese demand and global growth also supported the fresh rise in prices.
Brent crude advanced $1.19, or 1.4 per cent, to $84.11 a barrel while US West Texas Intermediate (WTI) crude rose by $1.34, or 1.7 per cent, to $80.12. on the Multi Commodity Exchange (MCX), crude oil futures due for a August 21 expiry, were last trading higher by 2.19 per cent at ₹6,615 per bbl, having swung between ₹6,485 and ₹6,618 per bbl during the session so far, against a previous close of ₹6,473 per barrel.
What's driving crude oil prices?
Oil prices dropped on Wednesday after data showed US crude inventories fell less than expected and the US Federal Reserve raised interest rates by a quarter of a percentage point, leaving the way open for another increase.
-"We see the oil market undersupplied," UBS analysts said in a report. "We retain a positive outlook and look for Brent to rise to $85–$90 over the coming months."
-Risk appetite in wider financial markets is being boosted by growing expectations that central banks such as the Fed are nearing the end of policy tightening campaigns, which would boost the outlook for global growth and energy demand, according to news agency Reuters.
The US economy grew by a bigger than expected 2.4 per cent last quarter, government data showed Thursday, as labor market resilience supported consumer spending, while businesses boosted investment in equipment, potentially keeping a recession at bay. The European Central Bank also raised interest rates for the ninth consecutive time on Thursday.
-Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.
“With interest rate hikes either at or near a peak amidst increasing views that a recession will be avoided, risk assets such as oil have become increasingly appealing," Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois told Reuters.
-A pledge on Monday from China to boost policy support for the economy has spurred hopes of oil demand regeneration from the world's largest crude importer, Phillip Nova analyst Priyanka Sachdeva said in a note, according to Reuters. Also, coming into focus is an August 4 meeting of OPEC+ ministers to review the oil market.
Technical View
‘’Crude oil prices climbed today recouping losses from the previous session, supported by supply tightness owing to OPEC+ production cuts and renewed optimism on the outlook for Chinese demand and global growth,'' said domestic brokerage firm Religare Broking Ltd.
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 ₹6,550 - ₹6,720. The turnaround is seen at ₹6,480.
