Crude oil prices have shown swift upside momentum in past few months. In near term oil prices will be driven by fears of global recession, high inflation and as well as ongoing geopolitical developments and recovery in dollar index.
Overview and Outlook
Crude oil prices witnessed range bound movement since the beginning of the year 2023 till June 2023 but since then have shown swift upside momentum was witnessed in past few months as Saudi Arabia extended its 1 million barrel per day voluntary oil production cut until the end of the year. The reduction will put Saudi crude output near 9 million barrels per day over October, November and December and will be reviewed on a monthly basis.
Riyadh first applied the 1 million barrel per day reduction in July and has since extended it on a monthly basis. The cut adds to 1.66 million barrels per day of other voluntary crude output declines that some members of OPEC have put in place until the end of 2024. Fellow heavyweight oil producer Russia — which leads the contingent that joins OPEC nations in the OPEC+ coalition — also pledged to voluntarily reduce exports by 500,000 barrels per day in August and by 300,000 barrels per day in September.
In near term oil prices will be driven by fears of global recession, high inflation and as well as ongoing geopolitical developments and recovery in dollar index .International Energy Agency expects increasing supply tightness in the second half of 2023 as demand recovers in China, the world’s largest crude importer. Recently Russian ban on fuel exports could tighten global supply outweighed fears that further US interest rate hikes could dent demand.
Prices can take support near 6600-6800 while upside resistance remain near 8100 –8200 in MCX While in NYMEX the support is near $80-85 while resistance is near $105-110.
Factors affecting Crude oil prices
Oil output cuts
Oil output cuts which Saudi Arabia and Russia have extended to the end of 2023 will mean a substantial market deficit through the fourth quarter, the International Energy Agency. OPEC and its allies, known as OPEC+, began limiting supplies in 2022 to bolster the market. Output curbs by OPEC+ members of more than 2.5 million bpd since the start of 2023 have so far been offset by higher supplies from producers outside the alliance, including the United States, Brazil and still under-sanctions Iran.
IEA in its monthly report are optimistic about Chinese demand over the course of 2023, leaving their global demand estimates for this year and next largely unchanged. The IEA estimates 2023 global demand to grow by 2.2 million bpd, while OPEC expects growth of 2.44 million bpd. For 2024, the contrast is wide. The IEA expects growth to slow sharply to 1 million bpd, while OPEC has a far rosier estimate of 2.25 million bpd. Meanwhile, the U.S government’s Energy Information Administration has forecast demand growth at 1.81 million bpd for 2023 and 1.36 million bpd next year.
U.S. oil output falls
U.S. oil output from top shale-producing regions is on track to fall for a third month in a row in October to the lowest level since May 2023. The estimated decline of about 40,000 bpd would be the biggest monthly drop since December 2022. Crude output in the Permian Basin in Texas and New Mexico, the biggest U.S. shale oil basin, is expected to fall by nearly 26,000 bpd to 5.773 million bpd, which would be the lowest level since April. Crude production in the South Texas Eagle Ford region is due to fall by 17,000 bpd to 1.109 million bpd, which would be the lowest level since December 2022. However, oil production in the Bakken region of North Dakota and Montana is due to rise by about 3,000 bpd to 1.227 million bpd, which would be the highest level since November 2020. The EIA expects shale oil production in the United States to decline for a third consecutive month in September, dropping to 9.39 million bpd.
Russia banned exports of Gasoline
Russia temporarily banned exports of gasoline and diesel to all countries outside a circle of four ex-Soviet states with immediate effect to stabilize the domestic fuel market.
Daily Chart of Crude oil (NYMEX)
In NYMEX Crude oil prices are moving with steady upside momentum as it jumped from $67 to nearly $90 since last few months .Moreover they are hovering above the 10, 20 and 50 day moving averages on weekly chart. In near to medium term prices are expected to move upside towards the next resistance near $105-110 by taking support near $80 levels.
Daily Chart of Crude oil (MCX)
In MCX Crude oil prices have witnessed swift rally from nearly 6400 to above 7600 .Moreover they are hovering below the 10 ,20 and 50 day moving averages and RSI reading above 60 indicating strength. In near to medium term prices are expected to trade with upside bias by taking support near 6800-6600 and resistance near 8100-8200.
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