Crude oil prices likely to remain elevated. Here’s why
Crude oil prices have been fluctuating within a band since the last couple of months driven by a bunch of positive and negative factors coming into play. But, investors may brace for further volatility in the global oil prices due to various factors that are impacting the market.
Analysts believe that crude oil prices are likely to stay elevated in the short term amid supply concerns led by a steep fall in US inventories and as production cuts by the OPEC countries begin to be felt.
US crude oil inventories shrank at their fastest pace in nearly six months over the past week, data from the American Petroleum Institute (API) pointed out.
The North American oil supply has already been squeezed by Canadian wildfires and there are expectations of a surge in road trips in the US beginning with next Monday’s Memorial Day holiday. Both the contracts of crude oil have been rising in the run-up to the peak summer demand for travel.
“The sharp fall in US crude oil inventories, OPEC production cuts, increasing fuel consumption in the US and Saudi Arabian energy minister’s warning against shorting oil, are all factors that are supporting the crude oil prices,” said Ajay Kedia, Director, Kedia Advisory.
The Organization of Petroleum Exporting Countries (OPEC) and allies including Russia are expected to consider further output cuts at a meeting on June 4.
Meanwhile, Saudi Arabia issued a warning to short-sellers, suggesting OPEC might reduce output to support prices, leading to a rally in oil prices for the third consecutive session.
Also Read: Oil prices surge as US oil and fuel supplies tighten, OPEC considers output cuts
Moreover, due to the western sanctions, Russian oil supply will not flourish in the global market and will be limited to China and India, which will further lift the oil prices, Kedia added.
Amid all these factors, Kedia expects Brent oil prices may see the levels of $85 a barrel, while WTI crude may rise towards $80 a barrel in the near term.
“On MCX, we may see levels of ₹6,700 for the crude oil,” Kedia said.
Meanwhile, in the US, negotiations over raising the debt ceiling have remained unfruitful, increasing volatility in the oil prices.
There are also certain concerns that may limit a sharp surge in oil prices, including worsening economic conditions.
Pointing out the factors that are likely to keep a lid on the upside of crude oil prices, Amit Sajeja, Vice President Research – Commodities & Currencies at Motilal Oswal, said that manufacturing activity globally has taken a hit which can limit the upside on oil prices.
“Crude oil prices have been stuck in a range for a few months and WTI has been trading in a $65-82 band. Concerns over falling Chinese demand and slowdown in global growth still prevail,” Sajeja said.
He expects these worries will keep oil prices in check in the near future, but rising global demand and supply cuts will support the prices in the long run.
For a three month perspective, Sajeja sees Brent oil to be around $75-78 a barrel. However, he expects the prices to hit $90 a barrel till this calendar year end.
“On the domestic front, crude oil prices may see lower levels of ₹5,000-5,200 in near term, but by the 2023-end, the prices may spike towards ₹7,500-8,000, on MCX,” Sajeja added.