WTI Crude oil futures posted a weekly gain, rising more than 3%, to close above $87 per bbl in the previous week, as US fuel stockpiles dropped and exports rose to a record, signaling robust demand despite recent bearish economic trends.
The latest EIA data showed that US petroleum exports hit 11.4 million barrels a day last week, indicating robust demand. The surge came with domestic fuel inventories at historic seasonal lows, highlighting a tightening supply outlook and boosting sentiments as we head into winter, a period of typically higher distillate demand. US Gasoline inventories are at the lowest levels since 2014 and distillate stocks are hovering near the lowest since 2005.
However, oil pared early gains as investors moved away from risky assets on a dimming outlook for China and a slowing global economy. China’s economic growth outlook is darkening as investors bet Beijing will be slow to exit Covid Zero, while, Manufacturing PMIs from Eurozone, the UK, and the US showed contraction in October.
Outlook for the week – FOMC meeting in focus
The black gold might be under pressure for the week, owing to demand concerns from major consumer China coupled with risk-off sentiments ahead of the FOMC meeting. China’s Manufacturing PMI contracted in October, falling to 49.2, amid strict COVID restrictions in several big cities. Meanwhile, Chinese cities are doubling down on covid restrictions, amid rising cases, dampening earlier hopes of a rebound in demand.
The major event for the week will be the FOMC meeting. Investors are expecting pivotal language from Fed in this week’s meeting. If officials are moving to a 50 bps rate hike in December, they would want to prepare the market for that decision without prompting another sustained rally. We expect Fed to hike rates by 75 bps and hawkishness in Powell’s statements, along with consensus for a slower pace of hikes from December, without triggering a market rally. Recession concerns from the Bank of England might further weigh down on sentiments.
In the monthly figures, EIA said that crude production rose 0.9% to 11.98 million BPD in August, the highest since March 2020, still, the output is not expected to rise much amid a lack of investments in the sector.
Having said that, oil looks bullish on a positional basis and that might put a floor under prices, thus we don’t expect the weakness to sustain. A decision by OPEC+ to cut production in November, ending SPR sales in the US, and looming European Union sanctions on Russia has tightened the supply outlook.
We expect MCX Crude oil November futures to trade in the range of Rs. 6,750 – Rs. 7,600 per bbl for the week, with a downward bias.