Prathamesh Mallya expects oil prices to move higher to $70
Prathamesh Mallya, AVP Research Non-Agri Commodities & Currencies, Angel Broking talks about price movements in crude oil:
Oil prices Brent & WTI (CMP: $67.56&64.5/bbl) as of May 5, 2021, have been trading in a broad range of $10 ($60-$70 for Brent & $57-$67 for WTI) in the time period between February 8 and May 5, 2021. On MCX futures, oil prices have been trading in the range of Rs 4,200-Rs 5,000/bbl mark in the same time frame.
Weak dollar, prospects of increasing demand from the US, China, and Europe, falling oil inventories in the US, increase in refinery utilisation rate in the US, rise in China’s oil imports as well as vaccination drive across US & China are the current push factors at play for the black gold. Ease of lockdowns in the US and Europe had a fair share of optimism for oil markets to cheer in the recent weeks. On the contrary, prices are stable despite the lingering demand concerns amid resurgent waves of COVID-19, in India, the third-largest consumer of crude oil in the world.
Oil demand to rise in 2021
A spate of optimism has been surrounding oil prices as one-third of US residents have been vaccinated. United States has administered 245.6 million doses of COVID-19 vaccines in the country as of Sunday, May 2, 2021, according to the US Centres for Disease Control & Prevention (CDC).
China has administered 275.34 million doses of COVID-19 vaccines in the country as of Sunday, according to the National Health Commission compared to 270.41 million doses given as of Saturday, up by around 4.93 million doses.
Increasing vaccination drives in the US, Europe & China is a dominant factor in ramping oil demand, which is expected to grow by 5.5 million barrels per day to 6.5 mbpd in 2021 according to Reuter’s recent survey. This was in line with a cautiously optimistic picture drawn by the International Energy Agency (IEA) earlier in April as producers may need to pump 2 million bpd more to meet the expected demand.
Supplies of oil seem to be increasing
The 13-member Organisation of Petroleum Exporting Countries pumped 25.17 million barrels per day (bpd) in April, according to Reuter’s survey, which was up by
1,00,000 bpd from March. Output has risen every month since June 2020 with the exception of February. Moreover, Iran's exports are rising as talks took place to revive a 2015 nuclear deal, which could eventually allow more oil to the market.
OPEC, Russia and their allies will stick to plans for a phased easing of oil production restrictions from May to July amid upbeat forecasts for a recovery in global demand despite surging Coronavirus cases in India, Brazil & Japan. At the meeting which took place on April 1, the Group agreed to bring 2.1 million bpd back to the market from May to July, easing cuts to 5.8 million bpd.
Hedge funds increase their bets on oil
Money managers are increasing their bets on oil for most of the first quarter as can be seen in the graph alongside. The net longs as of April 27, 2021, stood at 3,87,394 contracts when compared to 3,75,346 contracts as of April 6, 2021. This clearly reflects the optimism of global fund managers in a commodity, which is regarded as a benchmark of the global economy.
What next for the black gold?
In an era of the second wave of COVID-19 infections in India, the re-opening of US and European economies after strict lockdowns, rising vaccination drives globally, the optimism of global hedge fund managers find solace for oil prices optimism to be on the brighter side.
A note of caution though as increasing oil supply from Iran, and the OPEC nations are a hindrance to the optimism of potential upside in oil prices.
However, we expect WTI oil prices (CMP: $64/bbl) in the international markets to head higher towards $70/bbl from a month's perspective while MCX oil futures (CMP: Rs 4,788/bbl might move lower towards the Rs 5,100/bbl mark in the same timeframe.