Oil snaps July rally, declines on stronger dollar; Brent at $84/bbl; what lies ahead?
2 min read 01 Aug 2023, 10:24 PM ISTBack home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 0.36 per cent at ₹6,721 per bbl, having swung between ₹6,637 and ₹6,722 per bbl during the session so far
PremiumOil prices snapped its record 13+ per cent rally and edged lower on August 1 on a stronger dollar and signs of profit-taking as investors went cautious on tightening global supplies and demand growth in the second half of the year.
Brent crude futures for October were at $84.80 a barrel, down 63 cents or 0.7 per cent. Front-month Brent settled at its highest since April 13 on Monday. US West Texas Intermediate crude futures were at $81.15 a barrel, down 65 cents or 0.8 per cent from the previous session's settlement, which was its highest since April 14.
Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 0.36 per cent at ₹6,721 per bbl, having swung between ₹6,637 and ₹6,722 per bbl during the session so far, against a previous close of ₹6,697 per barrel.
Oil 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. 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.
Why did oil snap its July rally?
-The dollar index , a measure of the greenback against six major currencies, rose 0.42 per cent. A stronger dollar makes crude more expensive for investors holding other currencies. “Crude is moving in a corrective phase this morning, prompted by a sharply higher US dollar index and satisfying the 'overbought' market situation," Dennis Kissler, senior vice president of trading at BOK Financial told news agency Reuters.
-US crude oil and petroleum products supplied, rose to 20.78 million bpd in May, the highest since August 2019 before the coronavirus pandemic decimated global energy demand, according to the Energy Information Administration. Also, the US July manufacturing purchasing manager's index (PMI) came in at 49 versus 46.6 (month-on-month).
-In order to revive China's private sector amid a flagging economic recovery following a protracted period of COVID restrictions, Chinese ministries, regulators and the central bank pledged more financing support to small businesses.
-On the supply side, the Organization of Petroleum Exporting Countries and its allies (OPEC+) meeting on Friday is expected to see Saudi Arabia roll its voluntary cuts through September, further tightening supplies.
-OPEC’s crude production plunged by the most in three years as Saudi Arabia implemented a deeper cutback in a bid to shore up global markets. The output plunged by 900,000 barrels a day last month to an average of 27.79 million a day, according to a Bloomberg survey. This is the biggest reduction since the group and its allies slashed supplies during the depths of the COVID-19 pandemic in 2020.
Technical View
‘’Crude oil prices eased today after past few sessions’ gains on expectations of tighter supply on hopes that the Saudi Arabia will extend voluntary output cuts into September,'' said domestic brokerage firm Religare Broking.
Religare Broking has mild-bullish sentiments on MCX Crude Oil. ‘’MACD divergence suggest mild positivity. Extended gains above 6,720 region may strengthen the prices further. Whereas, a dip below 6,630 may weaken the prices for the day,'' said the brokerage firm in its research report. Religare sees technical levels between ₹6,720 - ₹700. The turnaround is seen at ₹6,630.
