WTI Crude oil futures witnessed the fourth consecutive weekly decline and fell more than 7%, to a nine month low of $78.7 per bbl. Oil gave away all the war premium, on fears of demand destruction amid a looming recession and surging dollar index. Central banks across the globe are aggressively raising the interest rates, which ultimately curbs economic activity and thus oil demand. A slew of Manufacturing PMI’s from Euro area last week showed that economic activity contracted in UK and Eurozone.
Putting a floor under prices were concerns of further supply disruptions after President Vladimir Putin announced a partial military mobilization in Russia. MCX Crude oil October futures closed at Rs.6,426 per bbl in the previous week, down by 5.72%, aided by sharp weakness in Rupee.
US crude oil inventories rose by 1.142 million barrels in the week ended 16th September, largely due to another big release of barrels from US strategic petroleum reserves, which this past week came to 6.9 million barrels. Also, crude stocks at Cushing, Oklahoma, went up by 0.343 million barrels and gasoline stocks climbed by 1.569 million barrels. Meanwhile, distillate stockpiles, which include diesel and heating oil, surged by 1.231 million barrels.
Signs of economic slowdown are mounting, with US gasoline and diesel demand crashing to their lowest seasonal levels in more than a decade. Gasoline demand cratered to its lowest level for this time of year since 1997, according to the Energy Information Administration. A measure of diesel demand fell to its lowest since 2009. The four-week average supplied figure for both fuels, which tracks the amount of product delivered to wholesale distributors, is below where it stood during the pandemic when lockdowns crippled economic activity.
Outlook for the week
Crude oil medium term fundamentals still remain bearish. However, we might see a short term bounce back as the focus now shift’s to next week’s OPEC+ meeting. The cartel is poised to meet on 5th October and investors are expecting an output cut given the backdrop of recent fall in oil prices. Prospects of an output cut might bolster prices towards the end of this week. However, smaller cut wont make any significant difference as OPEC+ is already running at a deficit supply of more than 3 mbpd against their allocated quotas. Chinese demand might also increase as few Chinese state oil refineries are considering increasing runs by up to 10% in October, on prospects of stronger demand and a possible surge in fourth-quarter fuel exports. Having said that, sharp rally is not expected as, gasoline demand is faltering in US as we move away from peak summer driving season and Hurricane season has also been quiet for this year. We expect MCX Crude oil October futures to rise towards Rs.6,800 per bbl for the week.