Crude oil saw a bumpy ride in March as Banking Crisis pushed WTI oil below the $65 level and again back to $75 by the end of the month as contagion fears eased. On a monthly basis WTI oil closed with marginal loss while on a quarterly basis, prices were down 5% as recessionary fears, rising US crude oil inventories, and consistent Russian supplies more than offset the China oil demand growth expectations during the quarter.

Oil prices got a fresh trigger in April, as OPEC surprised markets by announcing additional output cuts of 1.16 mbpd, over and above the 2 mbpd cut announced last year that would remain in effect through 2023. WTI oil surged more than 8% considering the more than 3-million-barrel output cut is huge and may deepen the oil market deficit later this year.

Last week, oil prices saw yet another upsurge toward $83.80 levels after Russia’s weekly export flows slowed and the international agencies predicted tighter oil markets in H2 2023. Meanwhile, the Key time spreads suggested that the market is already tightening, with WTI’s prompt spread swinging into backwardation. Nonetheless, Fed members are still optimistic about another 25-bps rate hike in its May 03, meeting, despite inflation coming under control and US economic data showing weakness. This led the dollar to rebound last week exerting some pressure on oil prices at higher levels.

Fundamental Outlook 

Although broader fundamentals point to a deficit in crude oil in H2 2023 and signaling a positive price picture, but the conflicting near-term drivers would stall the rally temporarily. These include the US crude oil inventories that are hovering around 21 months high, US shale production seen higher in May, while there are signals that demand diesel is slowing.  On the other hand, Russia’s crude exports have once again bounced back above 3 million barrels a day last week, despite the nation saying it had lowered output. Nonetheless, China is projected to drive oil demand, growing by almost 1.0 mbpd y-o-y in 2Q23 and 0.8 mbpd y-o-y in 3Q23. Thus, no major fall is expected in China’s demand optimism. Further, comments from Fed officials will provide insight into the health of the US economy and the likely path of monetary policy. Overall, WTI oil prices are likely to trade in the range of $78-$85.50 per bbl in the short term while MCX Crude oil is likely to trade in the range of Rs 6,350- 7000 per bbl.