Oil prices reverse gains after 10-month high peak; Brent hovers at $89/bbl

Brent crude futures were down by 59 cents to $89.45 a barrel. US West Texas Intermediate crude (WTI) futures traded at $86.21 a barrel, down 48 cents. In the previous session, Brent crude futures rose by $1.04, or 1.2 per cent, to settle at $90.04 a barrel, closing above the $90 mark for the first time since November 16, 2022. US West Texas Intermediate crude (WTI) futures gained $1.14, or 1.3 per cent, to settle at $86.69 a barrel, also a 10-month high.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a September 19 expiry, were last trading lower by 0.33 per cent at ₹7,194 per bbl, having swung between ₹7,154 and ₹7,123 per bbl during the session so far, against a previous close of ₹7,218 per barrel.

Against a basket of currencies, the dollar was at 104.69, not far off the six-month high of 104.90 touched overnight. A stronger dollar can weigh on oil demand by making the fuel more expensive for holders of other currencies.

Reflecting supply concerns in the near term, the front-month Brent futures had traded near nine-month highs at $4.13 a barrel above prices in six months. For US WTI futures, the spread between front-month and the six-month contract widened to as much as $4.88 a barrel on Wednesday, also hovering near nine-month highs, according to news agency Reuters. Both Brent and WTI futures have gained more than 20 per cent since the end of June.

What’s driving crude oil prices?

-Saudi Arabia and Russia on Tuesday extended their voluntary oil cuts to the end of the year, the former to the tune of 1 million barrels per day (bpd) and the latter by 300,000 bpd. These are on top of the April cut agreed by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) running to the end of 2024. Investors had expected Saudi Arabia and Russia to extend voluntary cuts into October, but the three-month extension was unexpected.

-Both countries will review their decisions monthly to consider deepening cuts or raising output depending on market conditions. However, analysts warned that price rises could meet with obstacles as demand may dip when US refineries enter their September-October maintenance period, while potentially higher supply from Iran, Venezuela and Libya could also weigh.

-On the macroeconomic front, data from China to Eurozone and US for August has remained weak but the optimism around Chinese stimulus measures will keep prices buoyant alongside the supply cuts from OPEC+.

Where are oil prices headed?

Mohammed Imran, Research Analyst at Sharekhan by BNP Paribas expects the global crude oil market balance to face deficit of around 1.5 million bpd by the end of 2023 as Saudi Arabia and Russia jointly extended the voluntary production cuts around 1.3 mbpd till the end of the year.

The impact of OPEC+ output cuts is that oil prices have rallied 20 per cent since June this year amid the tighter market. However, Iran is expected to raise its supplies to roughly 3.4 mbpd by end of September, which may keep price cap, according to analysts.

‘’For the day we expect crude oil prices to see some profit booking on back of softer ISM services data, and the doubt over rate hikes could also dampen investors sentiments,” said Mohammed Imran.

Technical View

WTI Crude oil October: Current market price (CMP) at $86. BNP Paribas’ Imran said WTI Crude oil October will see support at $84.50/$83 and resistance at $88 -$90. MCX Crude Oil September will see support at 7,050 and a resistance ₹7,250, he added.

Domestic brokerage firm Religare Broking has neutral sentiments on MCX Crude Oil. ‘’MACD bullish divergence suggest mild positivity. However, an unexpected dip below 7,120 may induce weakness.,” said the brokerage firm in its research report. Religare sees technical levels between ₹6,800 – ₹7,520. The turnaround is seen at ₹7,120.

Updated: 06 Sep 2023, 06:38 PM IST