MCX Crude oil November futures may decline to Rs 6,750/bbl this week on demand concerns

By Royce Varghese

Oil posted weekly decline as focus shifted to Fed tightening. WTI crude oil futures fell below $86 per bbl, down by almost 8% in the previous week, as a stronger than expected US inflation cemented expectations of higher rate hikes from Fed, hurting oil demand. Chinese demand also remains muted amid the ongoing zero covid policy and rising covid cases, blunting some of the sting from OPEC’s upcoming supply curtailments in November. Meanwhile, in the monthly report, OPEC said that oil demand will increase by 2.64 million barrels per day, or 2.7%, in 2022, down 460,000 bpd from the previous forecast. That was the fourth time that the group cut the oil demand forecast.

Crude Oil price outlook for the week

Oil prices might continue to be under pressure on demand concerns stemming from a global tightening, while Chinese President Xi Jinping signalled no change in direction for China’s strict Covid rules providing little lift to a worsening growth outlook. Xi praised Covid Zero, his no-tolerance approach to containing infections, during a speech opening the 20th Communist Party congress in Beijing. Meanwhile, IMF has slashed global growth forecast to 3.2 percent in 2022 and 2.7 percent in 2023, from 6 percent in 2021. Crude oil demand closely tracks global GDP and any downward revision to global growth could prove bearish for oil prices.

President Joe Biden said last week that he will announce new actions this week to combat high US gasoline prices. There are reports that the Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further, according to people familiar with the matter. However, we believe such a small sized SPR release might not have any major impact.

Having said that, stagnant oil production in US, nearing end to SPR sales in October and OPEC+ output cut from November will lead to more tightness in oil market going forward and might put a floor under oil prices. We expect MCX Crude oil November futures to decline to Rs 6,750 per bbl for the week.

(Royce Varghese, Fundamental Analyst, Currency & Energy, Anand Rathi Shares and Stock Brokers. Views expressed are the author’s own.)