WTI crude oil futures fell below $86 per bbl, down by almost 8% in the previous week, as a stronger than expected US inflation cemented expectations of higher rate hikes from Fed, hurting oil demand. Chinese demand also remains muted amid the ongoing zero covid policy and rising covid cases, blunting some of the sting from OPEC’s upcoming supply curtailments in November.

Meanwhile, in the monthly report, OPEC said that oil demand will increase by 2.64 million barrels per day, or 2.7%, in 2022, down 460,000 bpd from the previous forecast. That was the fourth time that the group cut the oil demand forecast. The cartel also trimmed its 2023 forecast by 360,000 bpd to 102.02 million bpd, which was expected after the announcement of output cut in last meeting.

US crude oil inventories rose to to 9.9 million barrel for the week ending 7^th October according to EIA. However, the weekly production in US fell below 12 mbpd to 11.9 mbpd for the first time since mid-July. Along with that DOE also released almost 8 million barrels of oil from Strategic petroleum reserves, which led to higher stockpiles.

Money managers have increased their bullish Nymex WTI crude oil bets by 19,305 net-long positions to 208,666 in the previous week, CFTC data on futures and options showed.

Outlook for the week

Oil prices might continue to be under pressure on demand concerns stemming from a global tightening, while Chinese President Xi Jinping signalled no change in direction for China’s strict Covid rules providing little lift to a worsening growth outlook. Xi praised Covid Zero, his no-tolerance approach to containing infections, during a speech opening the 20^th Communist Party congress in Beijing. Meanwhile, IMF has slashed global growth forecast to 3.2 percent in 2022 and 2.7 percent in 2023, from 6 percent in 2021. Crude oil demand closely tracks global GDP and any downward revision to global growth could prove bearish for oil prices.

President Joe Biden said last week that he will announce new actions this week to combat high US gasoline prices. There are reports that the Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further, according to people familiar with the matter. However, we believe such a small sized SPR release might not have any major impact.

Having said that, stagnant oil production in US, nearing end to SPR sales in October and OPEC+ output cut from November will lead to more tightness in oil market going forward and might put a floor under oil prices.

We expect MCX Crude oil November futures to decline to Rs.6,750 per bbl for the week.