New Delhi, Aug 15: Crude Oil prices have seen sharp swings in the recent past where prices marked a top at USD 75 per barrel for WTI crude in July and have reversed course since then, witnessing a six consecutive week losing streak.
Statistically, the carnage has dragged down prices by almost 11 percent from three-and-a-half year highs in less than two months amid several macroeconomic and geopolitical factors.
While demand is deteriorating on the back of global trade tensions, slowing economic growth as well as liquidity concerns and has led to profit booking in the energy counter; on the other hand, a strong dollar and over-supply concerns are making a further dent on prices.
Prices are essentially marching to the US President Trump’s actions, which are exerting a major clout over oil markets.
Earlier, there were concerns about supply shortage as an outcome of Trump’s sanctions on Iran and war of words which led to oil prices marking a sweeping move to three and a half year highs.
But then Trump’s displeasure with high oil prices and influence over Saudi Arabia has led to augmented production levels.
In line with that, the oil cartel along with allies, including Russia, agreed in June to ease production curbs and increase output by around 1 million bpd to offset for lost supplies from Iran, Venezuela, and Libya.
Last month, global oil supply rise has been recorded at 300,000 bpd where OPEC’s production has been increasing rapidly and hit a new 2018 peak in July.
Russia’s production too climbed significantly in July by 150,000 bpd from a month earlier, a figure quite higher than was mutually agreed upon during a meeting of global oil producers in June.
Renewed Libyan exports have added around 850,000 bpd of crude into international markets, another dampener for prices.
Along with this, US production last week has risen to record levels of 11 million bpd mark, very close to Saudi Arabia and Russia’s production levels.
Volatility has thus become the flavor in recent months as oil markets reacted to increased supply from the OPEC, Russia and the US.
Not just the supply side rejig, but demand-side concerns popping up have also dwarfed the gains of around 24 percent seen till the first half of the year.
Trump’s protectionist stance and deepening trade spat with China has become a challenge for global economic outlook and it would certainly derail global oil demand growth.
Recent import data from China, the world’s biggest importer has indicated a slowdown in energy demand with oil imports showing quite a decline in numbers last month.
Apart from its own fundamentals, liquidity tightening in the US and hawkish stance of Fed has led to a consistent rise in the dollar index, wherein it has soared to 52-week highs.
This upsurge in the dollar makes crude which is priced in dollar terms costlier for the holder of other currencies and weighs on prices.
While taking stock of the recent developments, the direction of oil prices is likely to be on the road south in near term. A peak of $75 per barrel in mid-2018 seems comfortable to stick at its place, at least for this quarter.
Though topsy-turvy ride in crude prices is expected to continue, but overall they are likely to trade below the crucial resistance of $73 per barrel and Rs.4950 per barrel level and seem primed to tread lower.
A convincing breach of $65 per barrel handle at NYMEX and Rs.4470 per barrel at domestic bourses can pave the way for further downside towards $63.50 per barrel (Rs.4270 per barrel) mark.