Report on Crude oil – Globe Capital Market LTD.
23-Dec-2022
Report on Crude oil

Crude oil prices witnessed downside movement in the second half of the year 2022 as it fell from high of nearly $120 to $70 that is fall of nearly 40 percent in NYMEX and from nearly 9400 in MCX to 5900 recently that is fall of nearly 37 per cent due to rising global interest rates and economic slowdown concerns. In near term oil prices will be driven by recovering demand (China reopening, aviation recovering) amid constrained supply due to low levels of investment, risks to Russia supply, the end of SPR releases, and slowdown of U.S. shale production. Prices can take support near 5800-6000 while upside resistance remain near 7600 – 7700 in MCX While in NYMEX the support is near $68-70 while resistance is near $92-94.

Overview

Crude oil prices witnessed downside movement in the second half of the year 2022 as it fell from high of nearly $120 to $70 that is fall of nearly 40 percent in NYMEX and from nearly 9400 in MCX to 5900 recently that is fall of nearly 37 per cent due to rising global interest rates and economic slowdown concerns. But the planned and unplanned oil supply disruptions in several regions can contribute to tightening fundamentals thereby supporting the prices. Recently optimism from China’s reopening and oil demand recovery outweighed concerns of a global recession. But the upside remains capped due to monetary tightening by various global central banks to curtail excess liquidity in order to curb inflation. Meanwhile geopolitical tensions between Russia Ukraine will keep prices elevated. In near term oil prices will be driven by recovering demand (China reopening, aviation recovering) amid constrained supply due to low levels of investment, risks to Russia supply, the end of SPR releases, and slowdown of U.S. shale production. Prices can take support near 5800-6000 while upside resistance remain near 7600 – 7700 in MCX While in NYMEX the support is near $68-70 while resistance is near $92-94.

Factors affecting Crude oil prices

Russia and Ukraine tensions

The Russia-Ukraine conflict has begun to have a major impact on the world energy markets. India and China have become the largest buyers of Russian oil as Western nations restrict purchases and impose sanctions. India’s imports of Russian oil have risen from a very low base at the start of the year reaching a peak in June and July, and largely maintaining these levels through to November.

EU embargo on Russian crude oil

The European Union (EU) embargo on Russian oil, which came into force on December 5, 2022, is a long-awaited sanction for Kiev that should block one of Moscow’s main sources of revenue. From December 5, 2022, it will be prohibited to unload Russian oil into an EU port. The US, UK, Japan, and Australia have made similar commitments.

G7 coalition agrees $60 per barrel price cap for Russian oil

The Group of Seven (G7) nations and Australia said they had agreed a $60 per barrel price cap on Russian seaborne crude oil. The price cap, a G7 idea, aims to reduce Russia’s income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on Dec. 5. U.S. Treasury Secretary Janet Yellen said the cap will particularly benefit low- and medium-income countries that have borne the brunt of high energy and food prices. “With Russia’s economy already contracting and its budget increasingly stretched thin, the price cap will immediately cut into Putin’s most important source of revenue,” Yellen said in a statement.

OPEC failed to meet production target

In latest monthly report, OPEC revealed it had yet again failed to produce as much oil as it agreed to produce the last time it discussed output. And it wasn’t by a few thousand barrels per day, either. The shortfall was some 1.8 million barrels daily, but more importantly, that sort of undershooting of its own target has become a regular thing for the cartel.

China relaxing Covid norms will boost oil demand

In the last two weeks, China government authorities relaxed several measures that had forced many people to stay home and businesses to operate mostly remotely. The developments have been positive on energy markets, with both gas and oil prices rallying since Beijing relaxed Covid-19 norms.

Surge in US Crude oil exports

Sales of U.S. crude to other nations are now a record 3.4 million barrels per day (bpd), with exports of about 3 million bpd of refined products like gasoline and diesel fuel. Factors changing that equation this year include sanctions hurting Russia’s exports of oil and natural gas following its invasion of Ukraine, and Washington’s massive release of oil from emergency reserves to combat spiking gasoline prices U.S. government data showed net U.S. crude oil imports fell to 1.1 million barrels per day (bpd), the lowest since record keeping began in 2001. That is down sharply from five years ago, when the United States imported more than 7 million barrels per day.

OPEC+ misses production quota

The 19 OPEC+ members subject to the quota produced 310,000 bpd fewer barrels in November when compared to the month prior. But that’s still 1.81 million barrels per day short of its quota for November. OPEC’s crude production was down 770,000 bpd for November, a six-month low. The production declines were led by Saudi Arabia, which saw its output reduced by 440,000 bpd. The biggest laggards among the broader OPEC+ group now, according to Argus, are Russia, producing 670,000 bpd under target; Nigeria, producing 530,000 bpd under target, Angola, producing 350,000 bpd under target, and Malaysia, producing 170,000 under target.

EIA Inventory Data Report supporting crude oil

U.S. Energy Information Administration reported an inventory draw of 5.9 million barrels for the week to December 16. At 418.2 million barrels, U.S. crude oil inventories remain some 7 percent below the five-year average for this time of the year. The latest draw follows a weekly addition of 10.2 million barrels for the previous week—one of the biggest weekly increases in inventories this year.  In gasoline, the Energy Information Administration estimated an inventory build of 2.5 million barrels for the week to December 16, which compared with a build of 4.5 million barrels for the previous week.  Gasoline production averaged 9.6 million barrels daily, which compared with 9.2 million barrels daily for the previous week. In middle distillates, the EIA reported an inventory decline of 200,000 barrels for the week to December 16. This compared with a build of 1.4 million barrels for the previous week. Middle distillate production averaged 5.1 million bpd last week, which compares with 5.2 million bpd over the previous week.

 

Daily Chart of Crude oil (NYMEX)

Analysis

In NYMEX some recovery can be  seen in Crude oil as its prices have moved above 10 and 20 day moving averages. RSI on daily charts is 58 indicating that momentum is increasing. In near term further upside is possible towards $93-95 as downside is expected to remain capped near support level of $70.

Daily Chart of Crude oil (MCX)

Analysis

In MCX some recovery is being witnessed in Crude oil as prices have been moving above  the 10  and 20 day moving average. RSI indicator reading is above 50 thus indicating increase in upside momentum .In MCX the bounce back is expected to continue further as it has key support near 5800-6000 zone while upside resistance is near 7500-7600 zone.

 

Disclosure

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